S-shaped Utility Maximization with VaR Constraint and Partial Information

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.

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Publication Details

Journal
Journal of Optimization Theory and Applications
Published
2026-04-25
DOI
https://doi.org/10.1007/s10957-026-02998-0
Primary Topic
Risk and Portfolio Optimization
Type
article
Field-Weighted Citation Impact
0.00

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article

S-shaped Utility Maximization with VaR Constraint and Partial Information

Ashley Davey, Harry Zheng, Dongmei Zhu
Journal of Optimization Theory and Applications
Risk and Portfolio Optimization
article

S-shaped Utility Maximization with VaR Constraint and Partial Information

Ashley Davey, Harry Zheng, Dongmei Zhu
article en

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.

Journal of Optimization Theory and ApplicationsVol. 209(2)
Imperial College London (GB), Southeast University (CN)
Engineering and Physical Sciences Research Council, National Social Science Fund of China
Openalex Percentile: Top 99%
Risk and Portfolio Optimization
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