Investment-consumption with regime-switching discount rates
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Abstract: This paper considers the problem of consumption and investment in a financial market within a continuous time stochastic economy. The investor exhibits a change in the discount rate. The investment opportunities are a stock and a riskless account. The market coefficients and discount factor switch according to a finite state Markov chain. The change in the discount rate leads to time inconsistencies of the investor's decisions. The randomness in our model is driven by a Brownian motion and a Markov chain. Following Ekeland and Pirvu we introduce and characterize the subgame perfect strategies. Numerical experiments show the effect of time preference on subgame perfect strategies and the pre-commitment strategies.
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- Optimal investment-consumption strategy under inflation in a Markovian regime-switching market
- On time-inconsistent stochastic control in continuous time
- Time-consistent consumption-portfolio control problems with regime-switching-modulated habit formation: an essentially cooperative approach
- Optimal investment-consumption strategy in a discrete-time model with regime switching
- Mean-Variance Portfolio Selection under a Non-Markovian Regime-Switching Model: Time-Consistent Solutions
- A generalization of Ramsey rule on discount rate with regime switching
- Stochastic control with inhomogeneous regime switching: application to consumption and investment with unemployment and reemployment
- Stochastic production planning with regime switching
- Portfolio selection with regime-switching and state-dependent preferences
- Strong and weak equilibria for time-inconsistent stochastic control in continuous time
- Stochastic differential game, Esscher transform and general equilibrium under a Markovian regime-switching Lévy model
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