Optimal investment and consumption with proportional transaction costs in regime-switching model (Q481779)
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English | Optimal investment and consumption with proportional transaction costs in regime-switching model |
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Optimal investment and consumption with proportional transaction costs in regime-switching model (English)
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15 December 2014
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A dynamic optimal investment and consumption model of the financial market involving bond and stock parts is considered for the infinite horizon planning period as a special optimal control problem. The market behavior is described with the help of a Markovian chain so that all the rates are dependent on its parameters. Besides, the Brownian motion is used for description of the stock volatility. The author gives the optimal control formulation of the problem with maximization of the expected discounted utility along with the trajectory. The analysis is based on utilization of the Hamilton-Jacobi-Bellman equation. For some general classes of utility functions the value function is a viscosity solution of this equation. Taking a power type utility function allows one to obtain some additional properties, such as bounds and exact presentation of the value function and description of the solvency region.
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optimal investment and consumption
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infinite horizon planning
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Markovian chain rates
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Hamilton-Jacobi-Bellman equation
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power type utility function
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