Utility Maximization with Pathwise Constraints in Financial Markets
Published:Dec 30, 2025 17:29
•1 min read
•ArXiv
Analysis
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
“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.”