Consumption processes and positively homogeneous projection properties

DOI10.1007/S00780-008-0064-XMaRDI QIDQ1003347zbMATH OpenOpenAlexFDO

Authors Tom Fischer

Publication date 28 February 2009

Published in Finance and Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0711.4225

zbMATH Keywords

Consumption strategiesincome drawdownlog-Lévy processesmartingale consumptionpositive homogeneitysmooth bonus

Mathematics Subject Classification ID

Stochastic systems and control (93E99)

Abstract: We constructively prove the existence of time-discrete consumption processes for stochastic money accounts that fulfill a pre-specified positively homogeneous projection property (PHPP) and let the account always be positive and exactly zero at the end. One possible example is consumption rates forming a martingale under the above restrictions. For finite spaces, it is shown that any strictly positive consumption strategy with restrictions as above possesses at least one corresponding PHPP and could be constructed from it. We also consider numeric examples under time-discrete and -continuous account processes, cases with infinite time horizons and applications to income drawdown and bonus theory.

Review text

The paper introduces a general method to describe and construct consumption processes such that their stochastic money accounts are non-negative (possibly, positive and with zero total consumption at the end). The generality of the method means that at least in the case of finite spaces it can be shown that basically any meaningful consumption process can be described and constructed by it. In particular, consumption processes that possess positively homogeneous projection property are studied. The considered method itself allows one to directly describe stochastic properties of consumption processes. Numerical examples are considered for time-discrete and time-continuous account processes with finite and infinite horizons, and for applications to income drawdown and bonus theory.

Recommendations

• Structure of consumption sets and existence of equilibria in infinite- dimensional spaces
• scientific article; zbMATH DE number 493431
• scientific article; zbMATH DE number 850946
• Optimal consumption with stochastic prices in continuous time
• scientific article; zbMATH DE number 952105
• On the Concavity of the Consumption Function
• Propensity to consume and the optimality of Ramsey-Euler policies
• Consumption and portfolio turnpike theorems in a continuous-time finance model
• Projections and regularity of abstract processes

Cites work

• Optimal consumption and portfolio policies when asset prices follow a diffusion process
• Optimal Portfolio and Consumption Decisions for a “Small Investor” on a Finite Horizon
• Optimum consumption and portfolio rules in a continuous-time model

This page was built for publication: Consumption processes and positively homogeneous projection properties

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q1003347)