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The Stability of the Constrained Utility Maximization Problem - A BSDE Approach

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  • Markus Mocha
  • Nicholas Westray

Abstract

This article studies the sensitivity of the power utility maximization problem with respect to the investor's relative risk aversion, the statistical probability measure, the investment constraints and the market price of risk. We extend previous descriptions of the dual domain then exploit the link between the constrained utility maximization problem and continuous semimartingale quadratic BSDEs to reduce questions on sensitivity to results on stability for such equations. This then allows us to prove appropriate convergence of the primal and dual optimizers in the semimartingale topology.

Suggested Citation

  • Markus Mocha & Nicholas Westray, 2011. "The Stability of the Constrained Utility Maximization Problem - A BSDE Approach," Papers 1107.0190, arXiv.org.
    • Handle: RePEc:arx:papers:1107.0190
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    References listed on IDEAS

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    Cited by:

    1. Hao Xing, 2012. "Stability of the exponential utility maximization problem with respect to preferences," Papers 1205.6160, arXiv.org, revised Sep 2013.

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