Optimal consumption policies in illiquid markets
Probability
2008-07-03 v1
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.
Keywords
Cite
@article{arxiv.0807.0326,
title = {Optimal consumption policies in illiquid markets},
author = {Alessandra Cretarola and Fausto Gozzi and Huyên Pham and Peter Tankov},
journal= {arXiv preprint arXiv:0807.0326},
year = {2008}
}