Work

Strategies with minimal norm are optimal for expected utility maximisation under high model ambiguity

Year: 2025

Type: article

Abstract: We investigate an expected utility maximisation problem under model uncertainty in a one-period financial market. We capture model uncertainty by replacing the baseline model ℙ with an adverse choice from a Wasserstein ball of radius $k$ k around ℙ in the space of probability measures and consider the corresponding Wasserstein distributionally robust optimisation problem. We show that solutions converge to a strategy with minimal norm when uncertainty becomes large, i.e., when the radius $k$ k tends to infinity.

Source: Finance and Stochastics

DOI: 10.1007/s00780-025-00558-4

Authors: Laurence Carassus, Johannes Wiesel

Institutions: Supélec, Université Paris-Saclay, CentraleSupélec, University of Copenhagen, Carnegie Mellon University

Language: English

Topic: Risk and Portfolio Optimization

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,090

Funder: Københavns Universitet