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Horizon-unbiased utility functions
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Henderson, Vicky and Hobson, David (David G.) (2007) Horizon-unbiased utility functions. In: 3rd Cornell, Columbia, Carnegie-Mellon, Princeton Conference on Mathematical Finance (CCCP), New York, NY, 28-29 Apr 2006. Published in: Stochastic Processes and their Applications, Vol.117 (No.11). pp. 1621-1641. doi:10.1016/j.spa.2007.03.013 ISSN 0304-4149.
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Official URL: http://dx.doi.org/10.1016/j.spa.2007.03.013
Abstract
In this paper we consider a class of mixed optimal control/optimal stopping problems related to the choice of the best time to sell a single unit of an indivisible asset. We assume that in addition to the indivisible asset, the agent has access to a financial market. Investments in the financial market can be used for hedging, but the financial assets are only partially correlated with the indivisible asset, so that the agent faces an incomplete markets problem.
We show how, even in the infinite horizon case, it is possible to express the problem as a maximisation problem with respect to an inter-temporal utility function evaluated at the sale time, but that this objective function must satisfy consistency conditions over time. (C) 2007 Elsevier B.V. All rights reserved.
| Item Type: | Conference Item (Paper) | ||||
|---|---|---|---|---|---|
| Subjects: | Q Science > QA Mathematics | ||||
| Divisions: | Faculty of Science, Engineering and Medicine > Science > Statistics Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | Stochastic Processes and their Applications | ||||
| Publisher: | Elsevier Science BV | ||||
| ISSN: | 0304-4149 | ||||
| Official Date: | 2007 | ||||
| Dates: |
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| Volume: | Vol.117 | ||||
| Number: | No.11 | ||||
| Number of Pages: | 21 | ||||
| Page Range: | pp. 1621-1641 | ||||
| DOI: | 10.1016/j.spa.2007.03.013 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access | ||||
| Conference Paper Type: | Paper | ||||
| Title of Event: | 3rd Cornell, Columbia, Carnegie-Mellon, Princeton Conference on Mathematical Finance (CCCP) | ||||
| Type of Event: | Conference | ||||
| Location of Event: | New York, NY | ||||
| Date(s) of Event: | 28-29 Apr 2006 |
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