POWER UTILITY MAXIMIZATION IN CONSTRAINED EXPONENTIAL LÉVY MODELS

Source abstract

We study power utility maximization for exponential Lévy models with portfolio constraints, where utility is obtained from consumption and/or terminal wealth. For convex constraints, an explicit solution in terms of the Lévy triplet is constructed under minimal assumptions by solving the Bellman equation. We use a novel transformation of the model to avoid technical conditions. The consequences for q ‐optimal martingale measures are discussed as well as extensions to nonconvex constraints.