Asymptotics of robust utility maximization

Abstract

For a stochastic factor model we maximize the long-term growth rate of robust expected power utility with parameter λ ∈ (0, 1). Using duality methods the problem is reformulated as an infinite time horizon, risk-sensitive control problem. Our results characterize the optimal growth rate, an optimal long-term trading strategy and an asymptotic worst-case model in terms of an ergodic Bellman equation. With these results we propose a duality approach to a “robust large deviations” criterion for optimal long-term investment.