Convex Duality and Orlicz Spaces in Expected Utility Maximization
Mathematical Finance 30(1), 85-127, 2020
46 Pages Posted: 30 Nov 2017 Last revised: 6 Jan 2020
Date Written: November 24, 2017
In this paper we report further progress towards a complete theory of state-independent expected utility maximization with semi-martingale price processes for arbitrary utility function. Without any technical assumptions we establish a surprising Fenchel duality result on conjugate Orlicz spaces, offering a new economic insight into the nature of primal optima and providing a fresh perspective on the classical papers of Kramkov and Schachermayer (1999, 2003). The analysis points to an intriguing interplay between no-arbitrage conditions and standard convex optimization and motivates study of the Fundamental Theorem of Asset Pricing (FTAP) for Orlicz tame strategies.
Keywords: utility maximization, Orlicz space, Fenchel duality, supermartingale deflator, effective market completion
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