Table of Links
2. Financial Market Model and Worst-Case Optimization Problem
3. Solution to the Post-Crash Problem
4. Solution to the Pre-Crash Problem
5. A BSDE Characterization of Indifferences Strategies
Acknowledgments and References
Appendix A. Proofs from Section 3
Appendix B. Proofs of BASDE Results from Section 5
Appendix C. Proofs of (CIR) Results from Section 6
3. Solution to the Post-Crash Problem
As is common in the worst-case optimal investment literature, the above problem can be solved by first considering for each crash scenario τ the post-crash problem starting at time τ , which is a classical portfolio optimization problem, compare e.g. Korn and Wilmott [39], Seifried [49]. Using the explicit representation of the objective from Lemma 6, the following result is immediate her
We moreover need the following useful property of the post-crash optimal strategy later when proving optimality results; the proof can be found in Appendix A.
Authors:
(1) Sascha Desmettre;
(2) Sebastian Merkel;
(3) Annalena Mickel;
(4) Alexander Steinicke.
This paper is available on arxiv under CC BY 4.0 DEED license.
[3] See Stokey et.al., Recursive Methods in Economic Dynamics, Thm. 3