Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/62092
Title: An optimal consumption-investment model with constraint on consumption
Authors: Xu, ZQ 
Yi, F
Keywords: Constrained consumption
Constrained viscosity solu-tion
Free boundary problem
Optimal consumption-investment model
Stochastic control in finance
Issue Date: 2016
Publisher: American Institute of Mathematical Sciences
Source: Mathematical control and related fields, 2016, v. 6, no. 3, p. 517-534 How to cite?
Journal: Mathematical control and related fields 
Abstract: A continuous-time consumption-investment model with constraint is considered for a small investor whose decisions are the consumption rate and the allocation of wealth to a risk-free and a risky asset with logarithmic Brow- nian motion uctuations. The consumption rate is subject to an upper bound constraint which linearly depends on the investor's wealth and bankruptcy is prohibited. The investor's objective is to maximize the total expected dis- counted utility of consumption over an infinite trading horizon. It is shown that the value function is (second order) smooth everywhere but a unique (known) possibly exception point and the optimal consumption-investment strategy is provided in a closed feedback form of wealth. According to this model, an investor should take the similar investment strategy as in Merton's model re- gardless his financial situation. By contrast, the optimal consumption strategy does depend on the investor's financial situation: he should use a similar con- sumption strategy as in Merton's model when he is in a bad situation, and consume as much as possible when he is in a good situation.
URI: http://hdl.handle.net/10397/62092
ISSN: 2156-8472
EISSN: 2156-8499
DOI: 10.3934/mcrf.2016014
Appears in Collections:Journal/Magazine Article

Access
View full-text via PolyU eLinks SFX Query
Show full item record

Page view(s)

51
Last Week
3
Last month
Checked on Oct 22, 2017

Google ScholarTM

Check

Altmetric



Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.