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Stability of Utility Maximization in Nonequivalent Markets

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  • Kim Weston

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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  • Kim Weston, 2014. "Stability of Utility Maximization in Nonequivalent Markets," Papers 1410.0915, arXiv.org, revised Jun 2015.
    • Handle: RePEc:arx:papers:1410.0915
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    References listed on IDEAS

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    1. Kasper Larsen & Gordan Zitkovic, 2007. "Stability of utility-maximization in incomplete markets," Papers 0706.0474, arXiv.org.
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    6. Bayraktar, Erhan & Kravitz, Ross, 2013. "Stability of exponential utility maximization with respect to market perturbations," Stochastic Processes and their Applications, Elsevier, vol. 123(5), pages 1671-1690.
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