An approximate solution for optimal portfolio in incomplete markets

Abstract

In an incomplete financial market where an investor maximizes the expected constant relative risk aversion utility of his terminal wealth, we present an approximate solution for the optimal portfolio. We take into account a set of assets and a set of state variables, all of them described by general diffusion processes. Finally, we supply an easy test for checking the goodness of the approximate result. © 2008 Springer-Verlag Berlin Heidelberg.