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SENSITIVITY ANALYSIS OF THE UTILITY MAXIMIZATION PROBLEM WITH RESPECT TO MODEL PERTURBATIONS

Tuesday, April 25, 2017 at 11:45am - 12:45pm

Oleksii Mostovyi, University of Connecticut: We study the sensitivity of the expected utility maximization problem in a continuous semimartingale market with respect to small changes in the market  price of risk. Assuming that the preferences of a rational economic agent are modeled with a general utility function, we obtain a second-order expansion of the value function, a first-order approximation of the terminal wealth, and construct trading strategies that match the indirect utility function up to the second order. If a risk-tolerance wealth process exists, using it as a numeraire and under an appropriate change of measure, we reduce the approximation problem to a Kunita-Watanabe decomposition. This talk is based on the joint work with Mihai Sirbu. 
Location   Hill 705

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Mathematical Finance Master's Program

Department of Mathematics, Hill 348
Hill Center for Mathematical Sciences
Rutgers, The State University of New Jersey
110 Frelinghuysen Road
Piscataway, NJ 08854-8019

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