State-Dependent Utility
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Publication:3621147
DOI10.1239/JAP/1238592116zbMATH Open1159.91393arXivmath/0603316OpenAlexW2038221057MaRDI QIDQ3621147FDOQ3621147
Authors: Jaime A. Londoño 
Publication date: 14 April 2009
Published in: Journal of Applied Probability (Search for Journal in Brave)
Abstract: We propose a new approach to utilities that is consistent with state-dependent utilities. In our model utilities reflect the level of consumption satisfaction of flows of cash in future times as they are valued when the economic agents are making their consumption and investment decisions. The theoretical framework used for the model is one proposed by the author in Dynamic State Tameness {arXiv:math.PR/0509139}. The proposed framework is a generalization of the theory of Brownian flows and can be applied to those processes that are the solutions of classical It^o stochastic differential equations, even when the volatilities and drifts are just locally -Holder continuous for some . We develop the martingale methodology for the solution of the problem of optimal consumption and investment. Complete solutions of the optimal consumption and portfolio problem are obtained in a very general setting which includes several functional forms for utilities in the current literature, and consider general restrictions on minimal wealths. As a secondary result we obtain a suitable representation for straightforward numerical computations of the optimal consumption and investment strategies.
Full work available at URL: https://arxiv.org/abs/math/0603316
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Cited In (11)
- Equilibrium investment with random risk aversion
- Optimal portfolio under state-dependent expected utility
- State-dependent utilities and incomplete markets
- State dependent choice
- Optimal payoffs under state-dependent preferences
- An expected utility theory for state-dependent preferences
- State-dependent SSB utility
- Duesenberry equilibrium and heterogenous agents
- Intertemporal asset pricing and the marginal utility of wealth
- Optimal consumption, investment, and life insurance purchase: a state-dependent utilities approach
- Shared Preferences and State-Dependent Utilities
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