On integrability of local utility maximizing strategies
Abstract
In stochastic control problems involving optimal portfolio choice, one often seeks an optimizer of some local criterion (dynamic programming value function) generated by some global criterion (e.g., expected utility). The local optimizer then typically acts as a stochastic integrand with respect to some multivariate stochastic process (e.g., asset prices). This paper takes a closer look at local criteria in the form of ``local expected utility''. Since the existence of the local optimizer can be established under very mild conditions, it is crucial to understand under what circumstances the local optimizer has good integrability properties. It is shown that the reasonable asymptotic elasticity condition of Kramkov and Schachermayer (1999) applied to the local utility function plays a key role in this context.
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BibTeX
@misc{cerny2026integrability,
title = {{On integrability of local utility maximizing strategies}},
author = {Aleš Černý and Johannes Ruf},
howpublished = {arXiv},
year = {2026},
month = oct,
doi = {10.48550/arxiv.2610.17915},
eprint = {2610.17915},
archivePrefix = {arXiv},
url = {https://arxiv.org/abs/2610.17915},
}
RIS
TY - UNPB
TI - On integrability of local utility maximizing strategies
AU - Aleš Černý
AU - Johannes Ruf
PY - 2026
DA - 2026/10/13
PB - arXiv
DO - 10.48550/arxiv.2610.17915
UR - https://arxiv.org/abs/2610.17915
AB - In stochastic control problems involving optimal portfolio choice, one often seeks an optimizer of some local criterion (dynamic programming value function) generated by some global criterion (e.g., expected utility). The local optimizer then typically acts as a stochastic integrand with respect to some multivariate stochastic process (e.g., asset prices). This paper takes a closer look at local criteria in the form of ``local expected utility''. Since the existence of the local optimizer can be established under very mild conditions, it is crucial to understand under what circumstances the local optimizer has good integrability properties. It is shown that the reasonable asymptotic elasticity condition of Kramkov and Schachermayer (1999) applied to the local utility function plays a key role in this context.
ER -