On the analyticity of the value function in optimal investment

Oleskii Mostovyi, Mihai Sîrbu, Thaleia Zariphopoulou

Published 2020-02-04Version 1

We study the analyticity of the value function in optimal investment with expected utility from terminal wealth. We identify both a class of utilities and a class of semi-martingale models for which we establish analyticity. Specifically, these utilities have completely monotonic inverse marginals, while the market models have a maximal element in the sense of infinite-order stochastic dominance. We construct two counterexamples, themselves of independent interest, which show that analyticity fails if either the utility or the market model does not belong to the respective special class. We also provide explicit formulas for the derivatives, of all orders, of the value functions as well as their optimizers.