Risk averse asymptotics in a Black-Scholes market on a finite time horizon

Peter Grandits, Stefan Thonhauser*

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

We consider the optimal investment and consumption problem in aBlack-Scholes market, if the target functional is given by expected discounted utility of consumption plus expected discounted utility of terminal wealth. We investigate the behaviour of the optimal strategies, if the relative risk aversion tends to infinity. It turns out that the limiting strategies are: do not invest at all in the stock market and keep the rate of consumption constant!

Original languageEnglish
Pages (from-to)21-40
Number of pages20
JournalMathematical Methods of Operations Research
Volume74
Issue number1
DOIs
Publication statusPublished - 1 Aug 2011
Externally publishedYes

Keywords

  • Black-Scholes Market
  • Risk aversion asymptotics
  • Utility maximization

ASJC Scopus subject areas

  • Software
  • Management Science and Operations Research
  • Mathematics(all)

Fields of Expertise

  • Information, Communication & Computing

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