Duality Theory for Optimal Investments under Model Uncertainty

Robust utility functionals arise as numerical representations of investor preferences, when the investor is uncertain about the underlying probabilistic model and averse against both risk and model uncertainty. In this paper, we study the duality theory for the problem of maximizing the robust utility of the terminal wealth in a general incomplete market model. We also allow for very general sets of prior models. In particular, we do not assume that all prior models are equivalent to each other, which allows us to handle many economically meaningful robust utility functionals such as those defined by AVaR(lambda), concave distortions, or convex capacities. We also show that dropping the equivalence of prior models may lead to new effects such as the existence of arbitrage strategies underthe least favorable model.

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Year of publication:	2005-09-02
Authors:	Schied, Alexander ; Wu, Ching-Tang
Institutions:	Sonderforschungsbereich Ökonomisches Risiko <Berlin>
Subject:	Investitionstheorie \| Unsicherheit \| Stochastisches Modell

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Extent:	436224 bytes 22 p. application/pdf
Series:	Sonderforschungsbereich 649: Ökonomisches Risiko - Diskussionspapiere Diskussionspapier ; 2005-025
Type of publication:	Book / Working Paper
Language:	English
Classification:	Employment of capital, capital investment planning and estimate of investment profitability ; Individual Working Papers, Preprints ; No country specification
Source:	USB Cologne (business full texts)