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Admissible Strategies In Semimartingale Portfolio Selection

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Executive Summary

The choice of admissible trading strategies in mathematical modeling of financial markets is a delicate issue, going back to Harrison and Kreps [HK79]. In the context of optimal portfolio selection with expected utility preferences this question has been the focus of considerable attention over the last twenty years. The authors propose a novel notion of admissibility that has many pleasant features - admissibility is characterized purely under the objective measure P; each admissible strategy can be approximated by simple strategies using finite number of trading dates.

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