Optimal Consumption and Investment Policies Allowing Consumption Constraints and Bankruptcy

Released on by John P. Lehoczky
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  • Optimal Consumption and Investment Policies Allowing Consumption Constraints and Bankruptcy Book Detail

  • Author : John P. Lehoczky
  • Release Date : 2011
  • Publisher :
  • Genre :
  • Pages : 114
  • ISBN 13 :
  • File Size : 29,29 MB
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Optimal Consumption and Investment Policies Allowing Consumption Constraints and Bankruptcy by John P. Lehoczky PDF Summary

Book Description: An agent can distribute his wealth between two investments, one with a fixed rate of return r and the other with a random rate of return (modeled as a diffusion) with mean r. The agent seeks to maximize total discounted utility from consumption over an infinite horizon. Consumption may be constrained from below. Various models for bankruptcy, including welfare, are considered. The agent has a strictly concave utility function for consumption; however, it is shown that the utility function for wealth may have convex portions, thus the agent may be risk seeking. The paper gives a complete treatment of the existence and nonexistence of optimal policies. New theorems for the optimal control of degenerate diffusions are given, as well as explicit formulas for the value function.

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