Continuous-Time Security Pricing: A Utility Gradient Approach, Journal of Mathematical Economics
We consider a (not necessarily complete) continuous-time security market with semimartingale prices and general information filtration. In such a setting, we show that the first order conditions for optimality of an agent maximizing a ``smooth'' (but not necessarily additive) utility can be formulated as the martingale property of prices, after normalization by a ``state-price'' process. The latter is given explicitly in terms of the agent's utility gradient, which is in turn computed in closed form for a wide class of dynamic utilities, including stochastic differential utility, habit-forming utilities, and extensions.
Darrell Duffie, Constantinos Skiadas
Duffie, Darrell, and Constantinos Skiadas. 1994. Continuous-Time Security Pricing: A Utility Gradient Approach. Journal of Mathematical Economics. 23(2): 107-131.