Wednesday, January 13, 2010

Utility functions galore

Nicole El Karoui opened the second day of the workshop with a new way to construct progressive utilities using optimal wealth processes. This gives additional mathematical weight to the general theme of dynamic utility functions, which were popularized in the mathematical finance community through the work of Marek Musiela and Thaleia Zariphopoulou on forward utilities.

Paolo Guasoni started his talk with provocative quotes from Paul Krugman and John Cochrane to motivate the study of market frictions, followed by an analysis of the fee incentives of hedge funds using utility functions for fund managers.

For the rest of the day, Semyon Malamud, Peter Bank, Kasper Larsen and Jaksa Cvitanic all talked about different aspects of markets with heterogeneous agents - one of the hottest as yet unexplored frontiers in mathematical finance.

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