Düring, Bertram and Jüngel, Ansgar (2005) Existence and uniqueness of solutions to a quasilinear parabolic equation with quadratic gradients in financial markets. Nonlinear Analysis, 62 (3). pp. 519-544.

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Abstract

A quasilinear parabolic equation with quadratic gradient terms is analyzed. The equation models an optimal portfolio in so-called incomplete financial markets consisting of risky assets and non-tradable state variables. Its solution allows to compute an optimal portfolio strategy. The quadratic gradient terms are essentially connected to the assumption that the so-called relative risk aversion function is not logarithmic. The existence of weak global-in-time solutions in any dimension is shown under natural hypotheses. The proof is based on the monotonicity method of Frehse. Furthermore, the uniqueness of solutions is shown under a smallness condition on the derivatives of the covariance (¿diffusion¿) matrices using a nonlinear test function technique developed by Barles and Murat. Finally, the influence of the non-tradable state variables on the optimal value function is illustrated by a numerical example in three dimensions.

Item Type:	Article
Schools and Departments:	School of Mathematical and Physical Sciences > Mathematics
Depositing User:	Bertram During
Date Deposited:	06 Feb 2012 19:30
Last Modified:	04 Apr 2012 09:08
URI:	http://sro.sussex.ac.uk/id/eprint/20957

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