Unrestricted consumption under a deterministic wealth and an Ornstein-Uhlenbeck process as a discount rate

DOI10.1080/15326349.2017.1392867zbMATH Open1386.93305arXiv1603.07622OpenAlexW2963640575WikidataQ90376529 ScholiaQ90376529MaRDI QIDQ4643635FDOQ4643635

Authors: Julia Eisenberg 

Publication date: 28 May 2018

Published in: Stochastic Models (Search for Journal in Brave)

Abstract: We consider an individual or household endowed with an initial capital and an income, modeled as a linear function of time. Assuming that the discount rate evolves as an Ornstein-Uhlenbeck process, we target to find an unrestricted consumption strategy such that the value of the expected discounted consumption is maximized. Differently than in the case with restricted consumption rates, we can determine the optimal strategy and the value function.

Full work available at URL: https://arxiv.org/abs/1603.07622

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zbMATH Keywords

Ornstein-Uhlenbeck processHamilton-Jacobi-Bellman equationoptimal controlconsumptionshort rate

Mathematics Subject Classification ID

Consumer behavior, demand theory (91B42) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Dynamic programming in optimal control and differential games (49L20) Optimal stochastic control (93E20)

Cites Work

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• Optimal Consumption for General Diffusions with Absorbing and Reflecting Barriers
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• Optimal dividends under a stochastic interest rate

Cited In (4)

• Optimising dividends and consumption under an exponential CIR as a discount factor
• A note on optimal consumption and investment in a geometric Ornstein-Uhlenbeck market
• Optimal dividend of compound Poisson process under a stochastic interest rate
• Title not available (Why is that?)

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