Optimality and state pricing in constrained financial markets with recursive utility under continuous and discontinuous information

Mark Schroder*, Costis Skiadas

*Corresponding author for this work

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

We study marginal pricing and optimality conditions for an agent maximizing generalized recursive utility in a financial market with information generated by Brownian motion and marked point processes. The setting allows for convex trading constraints, non-tradable income, and non-linear wealth dynamics. We show that the FBSDE system of the general optimality conditions reduces to a single BSDE under translation or scale invariance assumptions, and we identify tractable applications based on quadratic BSDEs. An appendix relates the main optimality conditions to duality.

Original languageEnglish (US)
Pages (from-to)199-238
Number of pages40
JournalMathematical Finance
Volume18
Issue number2
DOIs
StatePublished - Apr 1 2008

Keywords

  • BSDE
  • FBSDE
  • Marked point processes
  • Optimal portfolio
  • Recursive utility

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Applied Mathematics

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