Turnpike property and convergence rate for an investment model with general utility functions

DOI10.1016/J.JEDC.2014.09.025MaRDI QIDQ1623978zbMATH OpenOpenAlexFDO

Authors Baojun Bian, Harry Zheng

Publication date 15 November 2018

Published in Journal of Economic Dynamics and Control (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1409.7802

zbMATH Keywords

convergence rateturnpike propertydual representationnon-strictly concave utility functionsmooth solution to HJB equation

Mathematics Subject Classification ID

Portfolio theory (91G10) Economic growth models (91B62) Optimal stochastic control (93E20)

Abstract: In this paper we aim to address two questions faced by a long-term investor with a power-type utility at high levels of wealth: one is whether the turnpike property still holds for a general utility that is not necessarily differentiable or strictly concave, the other is whether the error and the convergence rate of the turnpike property can be estimated. We give positive answers to both questions. To achieve these results, we first show that there is a classical solution to the HJB equation and give a representation of the solution in terms of the dual function of the solution to the dual HJB equation. We demonstrate the usefulness of that representation with some nontrivial examples that would be difficult to solve with the trial and error method. We then combine the dual method and the partial differential equation method to give a direct proof to the turnpike property and to estimate the error and the convergence rate of the optimal policy when the utility function is continuously differentiable and strictly concave. We finally relax the conditions of the utility function and provide some sufficient conditions that guarantee the turnpike property and the convergence rate in terms of both primal and dual utility functions.

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Cites work

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• Continuous-time stochastic control and optimization with financial applications
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Cited in

(21)

• The asymptotic behavior of the optimal cash holding strategy under a class of utility functions
• Constrained nonsmooth utility maximization on the positive real line
• Abstract, classic, and explicit turnpikes
• An optimal investment problem with nonsmooth and nonconcave utility over a finite time horizon
• Finite difference methods for the Hamilton-Jacobi-Bellman equations arising in regime switching utility maximization
• Utilitarian versus neutralitarian design of endowment fund policies
• Transition density function expansion methods for portfolio optimization
• Asymptotic behavior of an optimal investment-reinsurance problem with general utility functions
• Dual control Monte-Carlo method for tight bounds of value function under Heston stochastic volatility model
• Turnpike property and convergence rate for an investment and consumption model
• A solvable time-inconsistent principal-agent problem
• Optimal investment strategies for general utilities under dynamic elasticity of variance models
• Dual control Monte-Carlo method for tight bounds of value function in regime switching utility maximization
• Solving maxmin optimization problems via population games
• Optimal investment strategy with constant absolute risk aversion utility under an extended CEV model
• Utility maximization under trading constraints with discontinuous utility
• Optimal investment of DC pension plan under short-selling constraints and portfolio insurance
• Least-squares Monte-Carlo methods for optimal stopping investment under CEV models
• Dynamic convex duality in constrained utility maximization
• Global closed-form approximation of free boundary for optimal investment stopping problems
• Penalized schemes for Hamilton-Jacobi-Bellman quasi-variational inequalities arising in regime switching utility maximization with optimal stopping

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