Utility maximization in incomplete markets with random endowment

Jaksa Cvitanic, Walter Schachermayer, Hui Wang

Publikation: Working/Discussion PaperWU Working Paper

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Abstract

This paper solves a long-standing open problem in mathematical finance: to find a solution to the problem of maximizing utility from terminal wealth of an agent with a random endowment process, in the general, semimartingale model for incomplete markets, and to characterize it via the associated dual problem. We show that this is indeed possible if the dual problem and its domain are carefully defined. More precisely, we show that the optimal terminal wealth is equal to the inverse of marginal utility evaluated at the solution to the dual problem, which is in the form of the regular part of an element of(L∞)* (the dual space of L∞). (author's abstract)
OriginalspracheEnglisch
ErscheinungsortVienna
HerausgeberSFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business
PublikationsstatusVeröffentlicht - 2000

Publikationsreihe

NameWorking Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"
Nr.64

WU Working Paper Reihe

  • Working Papers SFB \Adaptive Information Systems and Modelling in Economics and Management Science\

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