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Asymptotic analysis of the expected utility maximization problem with respect to perturbations of the numéraire

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  • Mostovyi, Oleksii

Abstract

In an incomplete model, where under an appropriate numéraire, the stock price process is driven by a sigma-bounded semimartingale, we investigate the behavior of the expected utility maximization problem under small perturbations of the numéraire. We establish a quadratic approximation of the value function and a first-order expansion of the terminal wealth. Relying on a description of the base return process in terms of its semimartingale characteristics, we also construct wealth processes and nearly optimal strategies that allow for matching the primal value function up to the second order. We also link perturbations of the numéraire to distortions of the finite-variation part and martingale part of the stock price return and characterize the asymptotic expansions in terms of the risk-tolerance wealth process.

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  • Mostovyi, Oleksii, 2020. "Asymptotic analysis of the expected utility maximization problem with respect to perturbations of the numéraire," Stochastic Processes and their Applications, Elsevier, vol. 130(7), pages 4444-4469.
    • Handle: RePEc:eee:spapps:v:130:y:2020:i:7:p:4444-4469
    DOI: 10.1016/j.spa.2020.01.003
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    References listed on IDEAS

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    Cited by:

    1. Michael Monoyios & Oleksii Mostovyi, 2022. "Stability of the Epstein-Zin problem," Papers 2208.09895, arXiv.org, revised Apr 2023.
    2. William Busching & Delphine Hintz & Oleksii Mostovyi & Alexey Pozdnyakov, 2022. "Fair pricing and hedging under small perturbations of the num\'eraire on a finite probability space," Papers 2208.09898, arXiv.org.
    3. Oleksii Mostovyi, 2020. "Stability of the indirect utility process," Papers 2002.09445, arXiv.org.

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