University of Twente Student Theses


On utility of wealth maximization

Angoshtari, Bahman (2009) On utility of wealth maximization.

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Abstract:This project is concerned with the continuous-time portfolio choice problem, also known as Merton's problem, when the opportunity set is stochastic (e.g. when the interest rate and/or volatility is stochastic). There are two main approaches for solving continuous-time portfolio problems: the classical stochastic control approach and the so called martingale approach. The main contribution of this project is to develop a new approach, called the direct approach. Unlike the stochastic control approach, it is not based on the Markov state assumption and can be extended to the general semimartingale market (though we have not tried to do so). Its advantage over the martingale approach is that the direct approach, as its name suggests, is dealing with the primal problem directly. So, unlike the martingale approach, the completeness or incompleteness of the market has not so much affect on it. Furthermore we are able to obtain the general form of the optimal portfolio policy directly, and not through a dual problem
Item Type:Essay (Master)
Faculty:EEMCS: Electrical Engineering, Mathematics and Computer Science
Subject:31 mathematics
Programme:Applied Mathematics MSc (60348)
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