Utility maximization with current utility on the wealth: regularity of solutions to the HJB equation
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Publication:2339124
dualityHamilton-Jacobi-Bellman equationinvestment-consumption problemoptimal stochastic controlregularity of viscosity solutions
Smoothness and regularity of solutions to PDEs (35B65) Dynamic programming in optimal control and differential games (49L20) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Duality theory (optimization) (49N15) Optimality conditions and duality in mathematical programming (90C46) Portfolio theory (91G10) Financial applications of other theories (91G80) Optimal stochastic control (93E20)
Abstract: We consider a utility maximization problem for an investment-consumption portfolio when the current utility depends also on the wealth process. Such kind of problems arise, e.g., in portfolio optimization with random horizon or with random trading times. To overcome the difficulties of the problem we use the dual approach. We define a dual problem and treat it by means of dynamic programming, showing that the viscosity solutions of the associated Hamilton-Jacobi-Bellman equation belong to a suitable class of smooth functions. This allows to define a smooth solution of the primal Hamilton-Jacobi-Bellman equation, proving that this solution is indeed unique in a suitable class and coincides with the value function of the primal problem. Some financial applications of the results are provided.
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