Optimal consumption and portfolio selection with Epstein-Zin utility under general constraints
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Publication:6090959
DOI10.3934/PUQR.2023012zbMATH Open1530.91526arXiv2111.09032MaRDI QIDQ6090959FDOQ6090959
Publication date: 21 November 2023
Published in: Probability, Uncertainty and Quantitative Risk (Search for Journal in Brave)
Abstract: The paper investigates the consumption-investment problem for an investor with Epstein-Zin utility in an incomplete market. Closed, not necessarily convex, constraints are imposed on strategies. The optimal consumption and investment strategies are characterized via a quadratic backward stochastic differential equation (BSDE). Due to the stochastic market environment, the solution to this BSDE is unbounded and thereby the BMO argument breaks down. After establishing the martingale optimality criterion, by delicately selecting Lyapunov functions, the verification theorem is ultimately obtained. Besides, several examples and numerical simulations for the optimal strategies are provided and illustrated.
Full work available at URL: https://arxiv.org/abs/2111.09032
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