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Financial Mathematics by Andrea Pascucci & Wolfgang J. Runggaldier

Financial Mathematics by Andrea Pascucci & Wolfgang J. Runggaldier

Author:Andrea Pascucci & Wolfgang J. Runggaldier
Language: eng
Format: epub
Publisher: Springer Milan, Milano


and thus they are independent of the state and the period;

ii)by using the martingale method and recalling the assumption r = 0, show that the terminal value of the portfolio that achieves the maximum expected utility is given by

where is the Radon-Nikodym derivative of the martingale measure Q with respect to the physical measure P;

iii)using the risk-neutral valuation formula (with r = 0)

determine the value of the optimal portfolio and the optimal strategy.

Solution of Problem 2.53 i)Recall from Example 2.40 that if r = 0 the dynamics of the value of a self-financing portfolio is given by



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