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Facelifting in utility maximization

Author(s): Larsen, K; Soner, H Mete; Žitković, G

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Abstract: © 2015, Springer-Verlag Berlin Heidelberg. We establish the existence and characterization of a primal and a dual facelift—discontinuity of the value function at the terminal time—for utility maximization in incomplete semimartingale-driven financial markets. Unlike in the lower and upper hedging problems, and somewhat unexpectedly, a facelift turns out to exist in utility maximization despite strict convexity in the objective function. In addition to discussing our results in their natural, Markovian environment, we also use them to show that the dual optimizer cannot be found in the set of countably additive (martingale) measures in a wide variety of situations.
Publication Date: 1-Jan-2016
Citation: Larsen, K, Soner, HM, Žitković, G. (2016). Facelifting in utility maximization. Finance and Stochastics, 20 (1), 99 - 121. doi:10.1007/s00780-015-0274-y
DOI: doi:10.1007/s00780-015-0274-y
ISSN: 0949-2984
Pages: 99 - 121
Type of Material: Journal Article
Journal/Proceeding Title: Finance and Stochastics
Version: Author's manuscript

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