scientific article; zbMATH DE number 2051035

MaRDI QIDQ4453309zbMATH OpenFDO

Authors Tze Leung Lai, Tiong Wee Lim

Publication date 7 March 2004

zbMATH Keywords

Hamilton-Jacobi-Bellman equationHara utilityMerton problem

Mathematics Subject Classification ID

Optimal stochastic control (93E20)

Review text

In the presence of transaction costs, the optimal continuous strategies (known e.g. from the Merton model) are no more admissible. The optimal investment and consumption process involves both the singular control (portfolio adjustments) and continuous one (consumption decisions), and perfect hedging of an option is impossible. The authors review various formulations of the problem, analyze in detail the corresponding Hamilton-Jacobi-Bellman equation for the two asset setting (one bond and one stock), discuss the appropriate choice of the objective function and suggest a Markov chain approximation of the controlled diffusion process. For the entire collection see [Zbl 1029.00083].

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Cited in

(3)

• Singular optimal strategies for investment with transaction costs
• A discrete stochastic model for investment with an application to the transaction costs case
• On the existence of optimal controls for a singular stochastic control problem in finance

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