Continuity of Utility-Maximization with Respect to Preferences

14 Pages Posted: 27 Apr 2009

See all articles by Kasper Larsen

Kasper Larsen

Rutgers, The State University of New Jersey

Date Written: 2007-08

Abstract

This paper provides an easily verifiable regularity condition under which the investor's utility maximizer depends continuously on the description of her preferences in a general incomplete financial setting. Specifically, we extend the setting of Jouini and Napp to include noise generated by a general continuous semi-martingale and to the case where the market price of risk process is allowed to be a general adapted process satisfying a mild integrability condition. This extension allows us to obtain positive results for both the mean-reversion model of Kim and Omberg and the stochastic volatility model of Heston. Finally, we provide an example set in Samuelson's complete financial model illustrating that without imposing additional regularity, the continuity property of the investor's optimizer can fail.

Suggested Citation

Larsen, Kasper, Continuity of Utility-Maximization with Respect to Preferences (2007-08). Mathematical Finance, Vol. 19, Issue 2, pp. 237-250, April 2009, Available at SSRN: https://ssrn.com/abstract=1378386 or http://dx.doi.org/10.1111/j.1467-9965.2009.00365.x

Kasper Larsen (Contact Author)

Rutgers, The State University of New Jersey ( email )

311 North 5th Street
New Brunswick, NJ 08854
United States

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