F (w , u(w ), u (w ), u

0 0 w 0 ww (w0)) < ∞, either uww (w0) > 0 or

Differentiate(4.3)with respect to w to obtain
uw (w0) = uww (w0) = 0. In the former case, we ∗
µ − r πw  uˆ w + (r w − µ − r
have 0 < F (w , v(w ), v (w ), v (w )) λuˆ e−εuˆ c) +
π ∗  uˆ ww .
0 0 w 0 ww 0
w = r 2
2
− F (w0, u(w0), uw (w0), uww By dividing both sides by uˆ w and rearranging terms, we get a non-
(w0)) +
1 e−εv(w0) λ 1− linear, first-order differential equation for π ∗ :
=λ − µ−r µ−r rw−c
2ε − e−εu(w0) π∗ =m−r + + λe
−εuˆ
. (4.5)
v (w )
ε
u2 (w )
w
+m w 0 −m w
0 2 σ2 π∗
vww(w0) uww For ε = εi, this differential equation becomes
(w0)
λ  −εu(w )
= e 0 − µ−r µ− rrw−c −ε u
ε (πi)w = m − r + + λe i i . (4.6)

e−εv(w0 )
σ2 πi
v2w (w0)(uww (w0) − vww(w0)) 2
+ m uww (w0)vww(w0)
≤ 0, π1 < π2
To show in (0, c /r ), we suppose, on the contrary,
a contradiction. In the latter case, we have vw(w0) = 0 and
that π1(w) ≥ π2(w) for some w ∈ (0, c/r ). Then, either (i)
vww(w0) ≥ 0, from which it follows that π1 − π2 attains a non-negative maximum at w0 ∈ [0, c/r ) with
(π1 − π2)w(w0) ≤ 0; or (ii) π1 − π2 attains a non-negative maxi-
0 < F (w0, v(w0), vw(w0), vww(w0)) mum at c/r −, and (i) does not hold.
− F (w0, u(w0), uw (w0), uww [0 First, if π1 − π2 attains a non-negative maximum at w0 ∈
(w0))

− e−εv(w
1−εu(w 0)
0) 1− , c/r ) with (π1 − π2)w(w0) ≤ 0, it follows from(4.6)that
e

=λ −λ µ−((π2)w (w0) − (π1)w (w0))

ε ε 0
r ≤
2
λ  −εu(w )  µ−r
= e 0 − e−εv(w0 ) ≤ (r w π1(w0) − π2(w0)
ε = σ2 −0 c) π1(w0)π2(w0)
0,
a contradiction. Q
+ λ e−ε2 u2(w0) − e−ε1 u1(w0)
Remark 4.2. If we only want non-strict comparison, that is, u ≤ µ−r π1(w0) − π2(w0)
<  (r w0 − c) ≤ 0,
v, then the sub-(super-) solution property can be weakened σ π1(w0)π2(w0)
2
to F (w, u, uw , uww )≤ F (w, v, vw, vww), with F (w, u, uw , uww
in which the second inequality follows from ε1u1(w0) <
) ε2u2(w0), and the third inequality follows from r w0 − c ≤ 0 and
finite. π1(w0) − π2(w0) ≥ 0. We have reached a contradiction.

Proposition 4.2. For 0 ≤ ε ≤ ∞ and w ∈ (0, c/r ), π ∗(w) is

strictly increasing in ε. In particular, Second, suppose π1 − π2 attains a non-negative maximum at
c
µ−r /r −, and (i) does not hold, that is π1(c/r −) − π2(c/r −) is the
c − r w < π ∗(w) < 2(c − r w) global maximum of π1 − π2 on [0, c/r ], and π1 − π2 does not at-
σ2 µ−r , tain this maximum at any other point in [0, c/r ]. Then, from(4.4),
(d − 1)r
− = = −
for all w ∈ (0, c/r ). we know that π1(c/r ) 0 π2(c/r ), from which it follows
that π1 < π2 in (0, c/r ).
Proof. Let 0 < ε1 < ε2 < ∞. Define ui (·) := uˆ (· ; εi ), πi (·) := Finally, if ε1 → 0, the differential equation satisfied by π1 be-
π ∗(· ; εi), and Fi(·) := F (· ; εi) for i = 1, 2. We first show u1 < u2 comes
µ− rrw−c
in (0, c/r ) via the comparison result inLemma 4.1. We have µ−r =m−r+ + λ.
(π1)
w
1 − e−ε1 u2 1 − e−ε2 2 σ2 π1
u2

F1(w, u2, (u2)w, (u2)ww) = λ −λ . If ε2 → ∞, the differential equation satisfied by π2 becomes

1−e−aε ε′ 1 ε−aε
2
Define f by f (ε) := ; then, f (ε) ∝ (aε + 1)e −1<0 µ−r µ −rrw− c
(π2) = m − r + .
ε w
if aε ̸= 0. In other words, f is strictly decreasing if a ̸= 0. 2 σ2 π2
= 0 or
For w ∈ (0, c/r ), because u2(w) ≥ ψ0(w) > 0, it follows Thus, the same contradiction argument ∗works if either ε1
that F1(w, u2, (u2)w, (u2)ww) > 0 = F1(w, u1, (u1)w, (u1)ww). By Lemma 4.1, u1 < u2 in (0, c/r ).
 Next, rewrite F (w, uˆ , uˆ w , uˆ ww ) = 0 as ε2 = ∞, and we have shown that π (w) strictly increases with
respect to ε for all w ∈ (0, c/r ). Q
Proposition 4.3. π ∗
is Lipschitz continuous in (0, c/r ) and satisfies
−εuˆ = ∗

r−e
1 µ−r (4.3) r
−c+
uˆ µ− w
λ (w ) π . π ∗
(w) = −
ε lim = (π0) (c/r −). (4.7)
w
2
As an aside, note that because the left side of(4.3)is positive and w→c/r −
w σ 2(d − 1)

uˆ w < 0 in (0, c/r ), it follows that Proof. For Lipschitz continuity, it suffices to show πw∗ is bounded,
∗ 2(c − r w) and because uˆ ∈ C ∞ [0, c/r ), it suffices to show(4.7). As in
0 < π (w) < , BayraktarandZhang(2015,Proposition 6.2), we use a general- ized
µ−r
l’Hôpital’s rule. Let ℓ := lim infw→c/r − πw∗ (w) and L :=
in (0, c/r ). In particular, lim supw→ −c/r πw∗ (w).
FromProposition 4.2, we deduce
π ∗ (c/r −) = 0,
rw− rw− c σ 2r (d− 1)
c ≥ = .
(4.4) π0(w) µ − r
−
π ∗(w)
for all 0 ≤ ε ≤ ∞.
The above inequality and(4.5)imply
µ−r Corollary 5.1shows us that the effective hazard rate λ∗ strictly
−ε uˆ increases with the reference hazard rate λ. Indeed, both λ and
π (w) ≥ m − rd + λe
∗
.
2 e−εψ increase with λ.
By letting w → c/r − in this inequality, we obtain Young(2004) showed that the optimal investment strategy in
the non-robust setting, namely π0, increases as λ decreases. As
µ−r m discussed above, if the individual is more likely to live longer, then
ℓ ≥ m − rd + λ = , (4.8) she will optimally invest more in the risky asset to avoid
2 1− d financial ruin. In the next proposition, we show that the same
in which the equality follows from direct computation. On the result holds for the optimal investment strategy in the robust
other hand, the generalized l’Hôpital’s rule fromTaylor(1952,The- problem.
orem II) applied to(4.5)leads to
µ−r µ−r r Proposition 5.2. For w (∈
0, c/r ), π ∗(w) strictly decreases with
L ≤ m − r + lim sup +λ respect to λ.
Proof. Let 0 ≤ λ < λ , and define π (·) := π ∗(· ; λ = λ )
2 w→c/r − σ 2
πw∗
1 2 i i
for i = 1, 2. To show π1 > π2 in (0, c /r ), we suppose, on the
µ−r r (w)
= m− r+ + λ. (4.9) contrary, that π1(w) ≤ π2(w) for some w ∈ (0, c/r ). Then, either
σ 2
ℓ (i) π2 − π1 attains a non-negative maximum at w0 ∈ [0, c/r )
Inequalities(4.8)and(4.9)imply with (π2 − π1)w(w0) ≤ 0; or (ii) π2 − π1 attains a non-negative
maximum at c/r −, and (i) does not hold.
m
mr
µ−r µ−r First, if π2 − π1 attains a non-negative maximum at w0 ∈
≤ ℓ≤ L≤ m− r+

1− d 2 2 µ−
r
2 [0, c/r ) with (π2 − π1)w(w0) ≤ 0, then it follows from(4.5)that
ℓ
m
µ − ((π2)w(w0) − (π1)w(w0))
+ λ ≤ m − r + r (1 − d) + λ = m − rd + λ = 0
r ≥
. 1
−d 2
2m µ−r
It follows that ℓ = L = =− . Q µ−r 0 π1(w0) − π2(w0)
(µ−r )(1−d) σ 2(d−1) = σ 2 (r w − c) π1(w0)π2(w0)
Thus, we have shown that u = uˆ 1[0,c /r ] , Π = π ∗ 1(0,c /r ) ,  
+ λ2 e−εψ2 (w0 ) − λ1 e−εψ1 (w0 )
and
ˆ
Θ = e−εu 1(0,c /r ) satisfy the conditions of the verification
1 0 2 0
µ−
theorem, r π (w ) − π (w )
Theorem 4.1. (Here,ˆu refers to the solution of the boundary- > (r w0 − c) ≥ 0,
value problem(4.2).) We have, thus, provedTheorem 3.1. σ 2 π1(w0)π2(w0)
in which the second inequality follows from λ1 < λ2 and
1. Other properties of the value function and the optimal ψ1(w0) > ψ2(w0), and the third inequality follows from r w0
controls −c ≤ 0 and π2(w0) − π1(w0) ≥ 0. We have reached a
contradiction.

In the proof ofProposition 4.2, we showed that
strictly increase with ε in (0, c/r ). In particular, π0
Furthermore, inProposition 4.3, we showed that π∗ is tangent to
Second, suppose π2 − π1 attains a non-negative maximum at
ψ∗and π ∗
c/r −, and (i) does not hold, that is π2(c/r −) − π1(c/r −) is the
≤ π ≤ π∞. global maximum of π2 − π1 on [0, c/r ], and π2 − π1 does not attain
this maximum at any other point in [0, c/r ]. Then, from(4.4), we
π0 as wealth approaches c/r .
In this section, we prove additional properties of ψ , π ∗, and ϑ ,∗
with the last’s properties following from those of ψ because ϑ ∗ =
e−εψ . For example, we deduce that ϑ ∗ strictly decreases with ε in
(0, c/r ) because ψ strictly increases with ε. Thus, as the
individual becomes more ambiguity averse, her ‘‘effective’’ hazard
rate, λϑ ∗, decreases. This monotonicity makes sense because the
risk in our setting is the risk of outliving one’s wealth, and if the
individual thinks that she will live longer (on average), then she
will invest accordingly by assuming more risk in the financial
market (π ∗ increases with ε).
Young(2004) showed that the minimum probability of
lifetime ruin in the non-robust setting, namely ψ0, increases as λ
decreases. If the individual is more likely to live longer, then she
has more time in which to ruin. In the next proposition, we show
that the same result holds for the value function of the robust
problem.
Proposition 5.1. For w ∈ (0, c/r ), ψ(w) strictly decreases with
respect to λ.
Proof. Let 0 ≤ λ1 < λ2, and define ψi(·) := ψ(· ; λ = λi) and
Fi(·) := F (· ; λ = λi) for i = 1, 2. We have
−
F1(w, ψ2, (ψ2)w, (ψ 2)ww) =
λ1 1− 1 e−εψ2 < 0
− λ
e−εψ2 2 ε
ε
know that π1(c/r −) = 0 = π2(c/r −), from which it follows that
π1 > π2 in (0, c/r ). Q
Via a proof similar toProposition 5.1’s, one can show that
ψ strictly increases with respect to σ ; thereby, we deduce that
the effective hazard rate decreases with σ . Thus, as the financial
market becomes more risky, the individual’s effective future
lifetime increases along with her (penalized) probability of lifetime
ruin.
Young(2004) andBayraktarandZhang(2015) showed that
optimally controlled wealth never reaches the safe level when
minimizing the (penalized) probability of lifetime ruin. The same
result holds when we penalize the probability of lifetime ruin for
ambiguous hazard rate.
Proposition 5.3. Let 0 < w < c/r , and let W ∗ be the optimally
controlled wealth process starting at w . Let τc∗/r := inf{t ≥ 0 : Wt∗
≥ c /r }, and let τ0∗ := inf{t ≥ 0 : Wt∗ ≤ 0}. Then, P(τc∗/r < τ0∗ )
= 0.
Proof. To prove this statement, one uses Feller’s test for
explosion; seeBayraktarandZhang(2015,Proposition 7.2) for
more details.
The only thing we need to check is π ∗(w) ≤ K (c − r w), for some
positive constant K , which holds byProposition 4.2. Q
−εψ
Because λ = λϑ = λe
∗ ∗
and because ψ decreases with
wealth, we know that the effective hazard rate λ∗ decreases as
∞
 = F1(w, ψ1, (ψ1)w, (ψ1)ww),
for all w ∈ (0, c/r ). Thus,Lemma 4.1implies ψ2 < ψ1 in
(0, c/r ). Q
Corollary 5.1. Define λ∗ by λ∗(w) := λϑ ∗(w) = λe−εψ(w). Then,
λ∗(w) strictly increases with respect to λ for w ∈ (0, c/r ).
wealth decreases toward ruin. Thus, as the individual becomes more poor, we expect the individual to invest as if her expected future
lifetime is larger. Specifically, we expect the individual to invest more in the risky asset as wealth decreases. This monotonicity is
clearly true for π0 and π , and the following proposition shows that it is true for all ε.
Proposition 5.4. π ∗
strictly decreases with respect to w in (0, c/r ).

Proof. We know from(4.5)that πw∗ (w) < 0 if and only if either

(1) m − r + λe−εψ(w) ≤ 0, or (2) m − r + λe−εψ(w) > 0 and
µ−r c− rw
f (w) := π ∗(w) − < 0.
σ 2
m − r + λe−εψ(w)
Notice that m − r + λe−εψ(w) is continuous and increasing in w.
If m − r + λe−εψ(w) ≤ 0 for all w ∈ (0, c/r ), then we are done.
Otherwise, define w1 := inf{w ∈ [0, c /r ] : m − r +λe−εψ (w) >
0}
< c/r . In this case, we need to show f (w) < 0 for all w ∈
(w1 , c /r ). Notice that πw∗ < 0 in a left-neighborhood of c /r by
Proposition 4.3. Thus, when w1 < c/r , we already have f < 0 in a
left-neighborhood of c/r .
Suppose, on the contrary that, f (w) ≥ 0 for some w ∈
(w1, c/r ). There are two sub-cases: (i) m − r + λe−εψ(w1) >
0, and (ii) m− r + λe−εψ(w1) = 0. In the first sub-case, max f (w)
{ :
w ∈ [w 1 , c/ r }
) = f (w0) for some w0 ∈ w1, c/r ). In the second
[
sub-case, since f (w) → −∞ as w → w1+ , max {f (w) : w ∈
(w1, c/r }) = f (w0) for some w0 ∈ (w1, c/r ). In both sub-cases, Fig. 1. Robust ruin probabilities.
we have f (w0) ≥ 0, and by the first-order condition, fw (w0) ≤ 0,
or equivalently,
µ − r c − r w0 
m − r − + λe−εψ(w0 )  m − r +
π
 σ ∗
λe−εψ(w0 ) 2 2 (w0)

≤ −rm m − r + λe−εψ(w0) + m(c − r w0)λεψw(w0)e−εψ(w0).
The left side of this inequality is non-negative because f (w0) ≥
0, and the right side is strictly negative; thus, we have reached a
contradiction and have shown that πw∗ (w) < 0 for all w ∈
(0, c/r ). Q

2. Numerical analysis and asymptotic expansion

We end this paper with numerical examples that illustrate the

results of the previous sections, and we provide an asymptotic
expansion of ψ for ε small. We show that the first-order expansion
of ψ has an error of order O(ε2) uniformly on (0, c/r ), and we
investigate the controls obtained from ψ’s expansion.

2.1. Numerical examples

We solve the boundary value problem(4.2)numerically using

a finite-difference method. The model parameters used are c = Fig. 2. Optimal investments.
1,
r = 0.02, µ = 0.1, σ = 0.2, and λ = 0.05. InFigs. 1–3, we
∗

observe how ψ , π , and λ , respectively, change as ε ranges from 0 to

; specifically, we=consider∞ε 0, 2, 10, 50, and . The cases
for which ε 0 and are solved using the explicit formulas (3.1)–(3.3)and(3.5).
 From the proof ofProposition 4.2, we know that the robust value function increases with ε, andFig.
1illustrates this monotonicity. From the same proposition, we know that the optimal amount to invest in the
risky asset increases with ε, and Fig. 2shows this. Furthermore, fromPropositions 4.3and5.4,
π ∗ decreases with wealth and becomes tangent to π0 as wealth approaches c/r , andFig. 2demonstrates these
results, too. Finally, λ∗ λϑ ∗ λe−εψ decreases with ε, as one can see inFig. 3.
= = Also, note, fromFigs. 1and3, although λ∗ varies from 0.05
to 0 as ε varies∞ from 0 to , the robust value function ψ does not vary greatly. Thus, one might conclude that,
for the particular parameter values that we consider, robustness with respect to λ is not as important as, say,
robustness with respect to µ, the drift of the risky asset, as inBayraktarandZhang(2015). A better way to examine
whether robustness is important is to ask the question: ‘‘What is the penalized probability of lifetime ruin if the
individual invests according to the non-robust strategy π0?’’Fig. 4answers