An HJB approach to exponential utility maximisation for jump processes Online publication date: Mon, 22-Dec-2008
by Claudia Ceci
International Journal of Risk Assessment and Management (IJRAM), Vol. 11, No. 1/2, 2009
Abstract: This paper deals with the problem of exponential utility maximisation in a model where the risky asset price S is a geometric marked point process whose dynamics depend on another process X, referred to as the stochastic factor. The process X is modelled as a jump diffusion process which may have common jump times with S. The classical dynamic programming approach leads us to characterise the value function as a solution of the Hamilton-Jacobi-Bellman equation. The solution, together with the optimal trading strategy, can be computed under suitable assumptions. Moreover, an explicit representation of the density of the minimal entropy measure (MEMM) and a duality result, which gives a relationship between the utility maximisation problem and the MEMM, are given. This duality result is obtained for a class of strategies greater than those usually considered in literature. A discussion on the pricing of a European claim by the utility indifference approach and its asymptotic variant is performed.
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