Stochastic Differential Utility

Asset Pricing with Stochastic Differential Utility

Dynamic Hedging with Stochastic Differential Utility*

In this paper we study the dynamic hedging problem using three different utility specifications: stochastic differential utility, terminal wealth utility, and a new utility transformation which includes features from the two previous approaches. In all three cases, we assume Markovian prices. While stochastic differential utility (SDU) has an ambiguous effect on the pure hedging demand, it does...

On the viscosity solutions of a stochastic differential utility problem

We prove existence, uniqueness and gradient estimates of stochastic differential utility as a solution of the Cauchy problem for the following equation in R: @xxu þ u@yu @tu 1⁄4 f ð ; uÞ; where f is Lipschitz continuous. We also characterize the solution in the vanishing viscosity sense. r 2002 Elsevier Science (USA). All rights reserved.

A utility based approach to information for stochastic differential equations

A Bayesian perspective is taken to quantify the amount of information learned from observing a stochastic process, X,, on the interval [ 0, T] which satisfies the stochastic differential equation, dX, = S( 0, t, X,) dt + u( t, X,) dB,. Information is defined as a change in expected utility when the experimenter is faced with the decision problem of reporting beliefs about the parameter of inter...

Optimal Consumption and Portfolio Selection with Stochastic Differential Utility

We develop the utility gradient (or martingale) approach for computing portfolio and consumption plans that maximize stochastic differential utility (SDU), a continuous-time version of recursive utility due to D. Duffie and L. Epstein (1992, Econometrica 60, 353 394). We characterize the first-order conditions of optimality as a system of forward backward SDEs, which, in the Markovian case, red...