Utility Maximization of the Exponential Lévy Switching Models
Abstract
This article is devoted to maximization of HARA (hyperbolic absolute risk aversion) utilities of the exponential Lévy switching processes on a finite time interval via the dual method. The description of all $f$-divergence minimal martingale measures and the expression of their Radon--Nikodým densities involving the Hellinger and Kulback--Leibler processes are given. The optimal strategies in progressively enlarged filtration for the maximization of HARA utilities as well as the values of the corresponding maximal expected utilities are derived. As an example, the Brownian switching model is presented with financial interpretations of the results via the value process.
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Theory of Probability & Its Applications
Pages: 127 - 149
ISSN (online): 1095-7219
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© 2024, Society for Industrial and Applied Mathematics.
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Submitted: 19 October 2020
Published online: 2 May 2024
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