Constrained Investment and Consumption under g-Expected Utility

Summary

This article studies optimal investment and consumption in an incomplete market when preferences are expressed through nonlinear g-expectations. Trading strategies are subject to general constraints, so the investor’s choices must satisfy restrictions as well as maximize utility.

The proposed g-martingale method converts the optimization problem into quadratic backward stochastic differential equations (BSDEs). Their solutions characterize the optimal investment-consumption strategy and provide explicit solutions for different utility functions. The available description gives no specific market data, numerical results, or detailed forms of the constraints, so it establishes a mathematical framework rather than evidence of practical performance.

Key ideas

• The setting is an incomplete market with nonlinear g-expected utility and constrained trading strategies.
• A g-martingale method is used to formulate the utility maximization problem.
• Quadratic BSDE solutions characterize optimal investment and consumption choices.
• Explicit solutions are reported for multiple utility functions, though the excerpt does not specify them.

Tags

# Optimal investment and consumption under $g$- expected utility and general constraints in incomplete market


# Optimal investment and consumption under $g$- expected utility and general constraints in incomplete market









This article studies the problem of utility maximization in an incomplete market under a class of nonlinear expectations and general constraints on trading strategies. Using a $g$-martingale method, we provide an explicit solution to our optimization problem for different utility functions and characterize an optimal investment-consumption strategy through the solutions to quadratic BSDEs.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.