ROBUST UTILITY MAXIMIZATION WITH LÉVY PROCESSES

ROBUST UTILITY MAXIMIZATION WITH LÉVY PROCESSES

We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible Lévy triplets, that is, possible instantaneous drift, volatility, and jump characteristics of the price process. We show that...

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Veröffentlicht in:Mathematical finance 2018-01, Vol.28 (1), p.82-105
Hauptverfasser: NEUFELD, ARIEL, NUTZ, MARCEL
Format: Artikel
Sprache:eng
Schlagworte:
Economic models
Investment strategy
Knightian uncertainty
nonlinear Lévy process
Optimization
Portfolio management
Power
Saddle points
Triplets
Uncertainty
utility maximization
Volatility
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Zusammenfassung:We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible Lévy triplets, that is, possible instantaneous drift, volatility, and jump characteristics of the price process. We show that an optimal investment strategy exists and compute it in semi‐closed form. Moreover, we provide a saddle point analysis describing a worst‐case model.
ISSN:0960-1627
1467-9965
DOI:10.1111/mafi.12139