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scientific article; zbMATH DE number 2051035
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scientific article; zbMATH DE number 2051035 |
Statements
7 March 2004
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Merton problem
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Hara utility
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Hamilton-Jacobi-Bellman equation
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0.91505516
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0.9059502
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0.90091276
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0.89136136
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In the presence of transaction costs, the optimal continuous strategies (known e.g. from the Merton model) are no more admissible. The optimal investment and consumption process involves both the singular control (portfolio adjustments) and continuous one (consumption decisions), and perfect hedging of an option is impossible. The authors review various formulations of the problem, analyze in detail the corresponding Hamilton-Jacobi-Bellman equation for the two asset setting (one bond and one stock), discuss the appropriate choice of the objective function and suggest a Markov chain approximation of the controlled diffusion process. For the entire collection see [Zbl 1029.00083].
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