Schachermayer, Walter (2000) Optimal investment in incomplete markets when wealth may become negative. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 65. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract
This paper accompanies a previous one from 1999 by D. Kramkov and the present author. There, we considered utility functions $U:\R_+ \to \R$ satisfying the Inada conditions $U'(0)=\infty$ and $U'(\infty)=0$, in the present paper we consider utility functions $U:\R\to\R$ which are finitely valued, for all $x\inftyn\R$, and satisfy $U'(\infty)=\infty$ and $U'(\infty)=0$. A typical example of this situation is the exponential utility $U(x)= \e^(x)$. In the setting of the former paper the following crucial condition on the asymptotic elasticity of $U$, as $x$ tends to $+\infty$, was isolated: $\limsup_(x\to +\infty) \frac(x U'(x))(U(x))<1$. This condition was found to be necessary and sufficient for the existence of the optimal investment as well as other key assertions of the related duality theory to hold true, if we allow for general semimartingales to model a (not necessarily complete) financial market. In the setting of the present paper this condition has to be accompanied by a similar condition on the asymptotic elasticity of $U$, as $x$ tends to $\infty$, namely, $\liminf_(x\to\infty) \frac(x U'(x))(U(x))>1$. If both conditions are satisfied  we then say that the utility function $U$ has reasonable asymptotic elasticity  we prove an existence theorem for the optimal investment in a general semimartingale model of a financial market and for a utility function $U:\R\to\R$ , which is finitely valued on all of $\R$; this theorem is parallel to the main result of the former paper. We give examples showing that the reasonable asymptotic elasticity of $U$ also is a necessary condition for several key assertions of the theory to hold true. (author's abstract)
Item Type:  Paper 

Keywords:  Kapitalanlage / unvollkommener Markt 
Divisions:  Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes Departments > Finance, Accounting and Statistics > Statistics and Mathematics Departments > Marketing > Service Marketing und Tourismus Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft 
Depositing User:  Repository Administrator 
Date Deposited:  22 Mar 2002 13:07 
Last Modified:  14 Sep 2010 23:54 
URI:  http://epub.wu.ac.at/id/eprint/466 
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