Optimal entry and consumption under habit formation
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Publication:5084791
Abstract: This paper studies a composite problem involving the decision making of the optimal entry time and dynamic consumption afterwards. In stage-1, the investor has access to full market information subjecting to some information costs and needs to choose an optimal stopping time to initiate stage-2; in stage-2, the investor terminates the costly full information acquisition and starts dynamic investment and consumption under partial observations of free public stock prices. The habit formation preference is employed, in which the past consumption affects the investor's current decisions. By using the stochastic Perron's method, the value function of the composite problem is proved to be the unique viscosity solution of some variational inequalities.
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Cited in
(7)- Habit formation and the Pareto-efficient provision of public goods
- Optimal consumption and life insurance under shortfall aversion and a drawdown constraint
- Optimal consumption with loss aversion and reference to past spending maximum
- Utility maximization with habit formation of interaction
- Optimal consumption dynamics with non-concave habit-forming utility
- On the concavity of consumption function under habit formation
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