Asymptotics of robust utility maximization

Details Asymptotics of robust utility maximization Asymptotics of robust utility maximization

2012-03-06

arxiv.org/abs/1203.1191v1

Annals of Applied Probability 2012, Vol. 22, No. 1, 172-212

Mathematics

Probability

Published in at http://dx.doi.org/10.1214/11-AAP764 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Inst

Scientific paper

10.1214/11-AAP764

For a stochastic factor model we maximize the long-term growth rate of robust expected power utility with parameter $\lambda\in(0,1)$. Using duality methods the problem is reformulated as an infinite time horizon, risk-sensitive control problem. Our results characterize the optimal growth rate, an optimal long-term trading strategy and an asymptotic worst-case model in terms of an ergodic Bellman equation. With these results we propose a duality approach to a "robust large deviations" criterion for optimal long-term investment.

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