Optimal consumption/investment problem with light stocks: A mixed continuous-discrete time approach

Roy Cerqueti

doi:10.1016/j.amc.2011.12.065

Optimal consumption/investment problem with light stocks: A mixed continuous-discrete time approach

Roy Cerqueti

Research output: Contribution to journal › Article › peer-review

5 Citations (Scopus)

Abstract

This paper addresses the optimal consumption/investment problem in a mixed discrete/continuous time model in presence of rarely traded stocks. Stochastic control theory with state variable driven by a jump-diffusion, via dynamic programming, is used. The theoretical study is validated through numerical experiments, and the proposed model is compared with the classical Merton’s portfolio. Some financial insights are provided.

Original language	English
Pages (from-to)	6887-6898
Journal	Applied Mathematics and Computation
DOIs	https://doi.org/10.1016/j.amc.2011.12.065
Publication status	Published - Feb 2012
Externally published	Yes

Keywords

Optimal consumption/ investment model
Dynamic programming
Utility maximization
Stochastic control theory
Jump-diffusion dynamics
Thin stocks
Monte Carlo simulations

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10.1016/j.amc.2011.12.065Licence: CC BY-NC-ND 4.0

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title = "Optimal consumption/investment problem with light stocks: A mixed continuous-discrete time approach",

abstract = "This paper addresses the optimal consumption/investment problem in a mixed discrete/continuous time model in presence of rarely traded stocks. Stochastic control theory with state variable driven by a jump-diffusion, via dynamic programming, is used. The theoretical study is validated through numerical experiments, and the proposed model is compared with the classical Merton{\textquoteright}s portfolio. Some financial insights are provided.",

keywords = "Optimal consumption/ investment model, Dynamic programming, Utility maximization, Stochastic control theory, Jump-diffusion dynamics, Thin stocks, Monte Carlo simulations",

author = "Roy Cerqueti",

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AB - This paper addresses the optimal consumption/investment problem in a mixed discrete/continuous time model in presence of rarely traded stocks. Stochastic control theory with state variable driven by a jump-diffusion, via dynamic programming, is used. The theoretical study is validated through numerical experiments, and the proposed model is compared with the classical Merton’s portfolio. Some financial insights are provided.

KW - Optimal consumption/ investment model

KW - Dynamic programming

KW - Utility maximization

KW - Stochastic control theory

KW - Jump-diffusion dynamics

KW - Thin stocks

KW - Monte Carlo simulations

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DO - 10.1016/j.amc.2011.12.065

M3 - Article

SN - 0096-3003

SP - 6887

EP - 6898

JO - Applied Mathematics and Computation

JF - Applied Mathematics and Computation

ER -

Optimal consumption/investment problem with light stocks: A mixed continuous-discrete time approach

Abstract

Keywords

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