Utility Maximization with Pathwise Constraints in Financial Markets
Research Paper#Financial Mathematics, Portfolio Optimization🔬 Research|Analyzed: Jan 3, 2026 15:36•
Published: Dec 30, 2025 17:29
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•ArXivAnalysis
This paper addresses a practical problem in financial markets: how an agent can maximize utility while adhering to constraints based on pessimistic valuations (model-independent bounds). The use of pathwise constraints and the application of max-plus decomposition are novel approaches. The explicit solutions for complete markets and the Black-Scholes-Merton model provide valuable insights for practical portfolio optimization, especially when dealing with mispriced options.
Key Takeaways
- •Addresses utility maximization under pathwise constraints in financial markets.
- •Employs model-independent bounds for valuation, reflecting a pessimistic view.
- •Provides explicit solutions for complete markets and the Black-Scholes-Merton model.
- •Offers insights into portfolio optimization with mispriced options.
Reference / Citation
View Original"The paper provides an expression of the optimal terminal wealth for complete markets using max-plus decomposition and derives explicit forms for the Black-Scholes-Merton model."