Related papers: Portfolio Optimization under Habit Formation
In this paper, optimal consumption and investment decisions are studied for an investor who can invest in a fixed interest rate bank account and a stock whose price is a log normal diffusion. We present the method of the HJB equation in…
Under mean-variance-utility framework, we propose a new portfolio selection model, which allows wealth and time both have influences on risk aversion in the process of investment. We solved the model under a game theoretic framework and…
This paper examines a continuous time intertemporal consumption and portfolio choice problem with a stochastic differential utility preference of Epstein-Zin type for a robust investor, who worries about model misspecification and seeks…
This paper studies a loss-averse version of the multiplicative habit formation preference and the corresponding optimal investment and consumption strategies over an infinite horizon. The agent's consumption preference is depicted by a…
This paper studies the infinite-horizon optimal consumption with a path-dependent reference under exponential utility. The performance is measured by the difference between the nonnegative consumption rate and a fraction of the historical…
In this paper,we study the individual's optimal retirement time and optimal consumption under habitual persistence. Because the individual feels equally satisfied with a lower habitual level and is more reluctant to change the habitual…
This paper examines an optimal investment problem in a continuous-time (essentially) complete financial market with a finite horizon. We deal with an investor who behaves consistently with principles of Cumulative Prospect Theory, and whose…
In this paper, we investigate the Merton portfolio management problem in the context of non-exponential discounting. This gives rise to time-inconsistency of the decision-maker. If the decision-maker at time t=0 can commit his/her…
We propose a tractable dynamic framework for the joint determination of optimal consumption, portfolio choice, and healthcare irreversible investment. Our model is based on a Merton's portfolio and consumption problem, where, in addition,…
We study the Merton portfolio management problem within a complete market, non constant time discount rate and general utility framework. The non constant discount rate introduces time inconsistency which can be solved by introducing sub…
Classical mean-variance portfolio theory tells us how to construct a portfolio of assets which has the greatest expected return for a given level of return volatility. Utility theory then allows an investor to choose the point along this…
The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time…
We investigate a continuous-time investment-consumption problem with model uncertainty in a general diffusion-based market with random model coefficients. We assume that a power utility investor is ambiguity-averse, with the preference to…
This paper studies the properties of the optimal portfolio-consumption strategies in a {finite horizon} robust utility maximization framework with different borrowing and lending rates. In particular, we allow for constraints on both…
This paper investigates Merton's portfolio problem in a rough stochastic environment described by Volterra Heston model. The model has a non-Markovian and non-semimartingale structure. By considering an auxiliary random process, we solve…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
We study an optimal investment/consumption problem in a model capturing market and credit risk dependencies. Stochastic factors drive both the default intensity and the volatility of the stocks in the portfolio. We use the martingale…
In this paper we consider a modification of the classical Merton portfolio optimization problem. Namely, an investor can trade in financial asset and consume his capital. He is additionally endowed with a one unit of an indivisible asset…
We determine the optimal investment strategy of an individual who targets a given rate of consumption and who seeks to minimize the probability of going bankrupt before she dies, also known as {\it lifetime ruin}. We impose two types of…
We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing…