Optimal consumption policies in illiquid markets
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Abstract: We investigate optimal consumption policies in the liquidity risk model introduced in Pham and Tankov (2007). Our main result is to derive smoothness results for the value functions of the portfolio/consumption choice problem. As an important consequence, we can prove the existence of the optimal control (portfolio/consumption strategy) which we characterize both in feedback form in terms of the derivatives of the value functions and as the solution of a second-order ODE. Finally, numerical illustrations of the behavior of optimal consumption strategies between two trading dates are given.
Recommendations
- Optimal consumption and investment with liquid and illiquid assets
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- Optimal consumption and investment in incomplete markets with general constraints
- Utility maximization in an illiquid market
- Investment/consumption problem in illiquid markets with regime-switching
- Optimal consumption strategies under model uncertainty
- Consumption-portfolio policies: an inverse optimal problem
- Optimal allocation–consumption problem for a portfolio with an illiquid asset
Cites work
- scientific article; zbMATH DE number 1795850 (Why is no real title available?)
- scientific article; zbMATH DE number 3992265 (Why is no real title available?)
- A coupled system of integrodifferential equations arising in liquidity risk model
- A model of optimal consumption under liquidity risk with random trading times
- Convex Analysis
- Generalized one-sided estimates for solutions of Hamilton-Jacobi equations and applications
- Optimal control and viscosity solutions of Hamilton-Jacobi-Bellman equations
- Optimal portfolio of low liquid assets with a log-utility function
- Semiconcave functions, Hamilton-Jacobi equations, and optimal control
- The relaxed investor and parameter uncertainty
Cited in
(16)- Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods
- Optimal asset allocation with restrictions on liquidity
- A model of optimal consumption under liquidity risk with random trading times
- Investment/consumption choice in illiquid markets with random trading times
- A coupled system of integrodifferential equations arising in liquidity risk model
- Impact of time illiquidity in a mixed market without full observation
- Optimal consumption and investment with liquid and illiquid assets
- Optimal stopping problems in Lévy models with random observations
- Optimal consumption/investment problem with light stocks: a mixed continuous-discrete time approach
- scientific article; zbMATH DE number 1795850 (Why is no real title available?)
- Optimal investment in an illiquid market with search frictions and transaction costs
- Investment/consumption problem in illiquid markets with regime-switching
- Optimal consumption under uncertainty, liquidity constraints, and bounded rationality
- Viscosity characterization of the value function of an investment-consumption problem in presence of an illiquid asset
- Mean-variance portfolio selection in presence of infrequently traded stocks
- Optimal allocation–consumption problem for a portfolio with an illiquid asset
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