Robust Utility Maximization with Lévy Processes

Ariel Neufeld (ETH Zürich)
Thursday, May 4, 2017 - 5:00pm
TU Berlin, Straße des 17. Juni 136, 10623 Berlin, Raum MA 043

We present a tractable framework for Knightian uncertainty, the so-called nonlinear Lévy processes, and use it to formulate and solve problems of robust utility maximization for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible Lévy triplets; that is, possible instantaneous drift, volatility and jump characteristics of the price process. Thus, our setup describes uncertainty about drift, volatility and jumps over a class of fairly general models. We show that an optimal investment strategy exists and compute it in semi-closed form. Moreover, we provide a saddle point analysis describing a worst-case model.
This talk is based on joint work with Marcel Nutz.