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Maximization of Non-Concave Utility Functions in Discrete-Time Financial Market Models

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  • Laurence Carassus
  • Miklos Rasonyi

Abstract

This paper investigates the problem of maximizing expected terminal utility in a (generically incomplete) discrete-time financial market model with finite time horizon. In contrast to the standard setting, a possibly non-concave utility function $U$ is considered, with domain of definition $\mathbb{R}$. Simple conditions are presented which guarantee the existence of an optimal strategy for the problem. In particular, the asymptotic elasticity of $U$ plays a decisive role: existence can be shown when it is strictly greater at $-\infty$ than at $+\infty$.

Suggested Citation

  • Laurence Carassus & Miklos Rasonyi, 2013. "Maximization of Non-Concave Utility Functions in Discrete-Time Financial Market Models," Papers 1302.0134, arXiv.org, revised Sep 2014.
    • Handle: RePEc:arx:papers:1302.0134
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    File URL: http://arxiv.org/pdf/1302.0134
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    References listed on IDEAS

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    1. Arjan B. Berkelaar & Roy Kouwenberg & Thierry Post, 2004. "Optimal Portfolio Choice under Loss Aversion," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 973-987, November.
    2. repec:dau:papers:123456789/2317 is not listed on IDEAS
    3. Bernard, Carole & Ghossoub, Mario, 2009. "Static Portfolio Choice under Cumulative Prospect Theory," MPRA Paper 15446, University Library of Munich, Germany.
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    Cited by:

    1. Miklos Rasonyi, 2014. "Optimal investment with bounded above utilities in discrete time markets," Papers 1409.2023, arXiv.org.
    2. Laurence Carassus & Mikl'os R'asonyi & Andrea M. Rodrigues, 2015. "Non-concave utility maximisation on the positive real axis in discrete time," Papers 1501.03123, arXiv.org, revised Apr 2015.

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