On Robust Utility Maximization

  • Date: 02/15/2007

Traian Pirvu (University of British Columbia)


University of British Columbia


We study the problem of optimal investment in incomplete markets,
robust with respect to stopping times. We work on a Brownian motion
framework and the stopping times are adapted to the Brownian
filtration. Robustness can only be achieved for logartihmic utility,
otherwise a cashflow should be added to the investor's wealth. The
cashflow can be decomposed into the sum of an increasing and a
decreasing process. The last one can be viewed as consumption. The
first one is an insurance premium the agent has to pay. Finally these
results can be applied to obtain a portfolio decomposition formula.