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Merton Problem with Parameter Uncertainty in a Jump Diffusion Framework

Kerem Ugurlu (keremugurlu***at***gmail.com)
Triet Pham (pmtriet00***at***yahoo.com )

Abstract: We study a utility optimization problem in a jump-diffusion framework, where there is Knightian uncertainty by incorporating the investor's prior belief about the future distribution of the market via a penalization term into the model. We derive semi-explicit solutions when the investor's utility function is of CRRA type.

Keywords: robust optimization; Merton problem in continuous time on jump-diffusion model

Category 1: Applications -- OR and Management Sciences


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Entry Submitted: 12/12/2017
Entry Accepted: 12/13/2017
Entry Last Modified: 05/04/2018

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