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Research Details

Optimality and State Pricing in Constrained Financial Markets with Recursive Utility under Continuous and Discontinuous Information, Mathematical Finance

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, nontradeable income, and nonlinear 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.

Type

Article

Author(s)

Mark Schroder, Constantinos Skiadas

Date Published

2008

Citations

Schroder, Mark, and Constantinos Skiadas. 2008. Optimality and State Pricing in Constrained Financial Markets with Recursive Utility under Continuous and Discontinuous Information. Mathematical Finance. 18(2): 199-238.

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