Stability of Utility Maximization in Nonequivalent Markets

2014/10/03 by Weston, Kim · 1 citation
#60G44 #91G80 #93E15 #FOS: Economics and business #FOS: Mathematics #Optimization and Control (math.OC) #Portfolio Management (q-fin.PM)

paper · doi:10.48550/arxiv.1410.0915

Abstract

Stability of the utility maximization problem with random endowment and indifference prices is studied for a sequence of financial markets in an incomplete Brownian setting. Our novelty lies in the nonequivalence of markets, in which the volatility of asset prices (as well as the drift) varies. Degeneracies arise from the presence of nonequivalence. In the positive real line utility framework, a counterexample is presented showing that the expected utility maximization problem can be unstable. A positive stability result is proven for utility functions on the entire real line.

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