2014/10/03 by Kasper Larsen, Larsen, Kasper, Oleksii Mostovyi +3
Economics, Econometrics and Finance · #FOS: Economics and business #Portfolio Management (q-fin.PM) #q-fin.PM
paper · pdf · doi:10.48550/arxiv.1410.0946
arxiv created 2016/08/10 · arxiv updated 2016/08/11
In the framework of an incomplete financial market where the stock price dynamics are modeled by a continuous semimartingale (not necessarily Markovian) an explicit second-order expansion formula for the power investor's value function - seen as a function of the underlying market price of risk process - is provided. This allows us to provide first-order approximations of the optimal primal and dual controls. Two specific calibrated numerical examples illustrating the accuracy of the method are also given.