S-shaped Utility Maximization with VaR Constraint and Partial Information
Abstract
We study S-shaped utility maximisation with VaR constraint and unobservable drift coefficient. Using the Bayesian filter, the concavification principle, and the change of measure, we give a semi-closed integral representation for the dual value function and find a critical wealth level that determines if the constrained problem admits a unique optimal solution and Lagrange multiplier or is infeasible. We also propose three algorithms (Lagrange, simulation, deep neural network) to solve the problem and compare their performances with numerical examples.
Fields of Study & Subjects
Risk and Portfolio Optimization
Stochastic processes and financial applications
Economic theories and models
Publication details
- Journal / source
- Journal of Optimization Theory and Applications
- Publisher
- Springer Science and Business Media LLC
- Volume
- 209
- Issue
- 2
- Pages
- 46–46
- Publication date
- 25 April 2026
- Language
- EN