Work

Optimal investment with random endowments in incomplete markets

Year: 2004

Type: article

Abstract: In this paper, we study the problem of expected utility maximization of an agent who, in addition to an initial capital, receives random endowments at maturity. Contrary to previous studies, we treat as the variables of the optimization problem not only the initial capital but also the number of units of the random endowments. We show that this approach leads to a dual problem, whose solution is always attained in the space of random variables. In particular, this technique does not require the use of finitely additive measures and the related assumption that the endowments are bounded.

Source: The Annals of Applied Probability

DOI: 10.1214/105051604000000134

Authors: Julien Hugonnier, Dmitry Kramkov

Institutions: HEC Montréal, Center for Interuniversity Research and Analysis on Organizations, Carnegie Mellon University

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funder: National Science Foundation

Awards: VIGRE: Vertical and Horizontal Integration of Research and Education in Statistics and Mathematical Sciences at Carnegie Mellon, FRG: The Mathematics of Financial Risk Management