Well Posedness of Utility Maximization Problems Under Partial Information in a Market with Gaussian Drift
Abstract
This paper investigates well posedness of utility maximization problems for financial markets where stock returns depend on a hidden Gaussian mean reverting drift process. Since that process is potentially unbounded well posedness cannot be guaranteed for utility functions which are not bounded from above. For power utility with relative risk aversion smaller than those of logutility this leads to restrictions on the choice of model parameters such as the investment horizon and parameters controlling the variance of the asset price and drift processes. We derive sufficient conditions to the model parameters leading to bounded maximum expected utility of terminal wealth for models with full and partial information.
 Publication:

arXiv eprints
 Pub Date:
 May 2022
 arXiv:
 arXiv:2205.08614
 Bibcode:
 2022arXiv220508614G
 Keywords:

 Quantitative Finance  Portfolio Management;
 91G10;
 93E11;
 60G35
 EPrint:
 17 pages, 1 figure