Robust Portfolio Optimization with Jumps ∗

January 9, 2015 We study an infinite horizon consumption-portfolio allocation problem in continuous time where asset prices follow Lévy processes and the investor is concerned about potential model misspecification of his reference model. We derive optimal portfolio holdings in closed form in the presence of model uncertainty, where we analyze perturbations to the reference model in the form of both drift and jump intensity perturbations. Furthermore, we present a method for calculating error-detection probabilities by means of Fourier inversion techniques of the conditional characteristic function in the case when the measure change follows a jump-diffusion process.

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