Related papers: Portfolio Optimization under Habit Formation
This paper studies the continuous time utility maximization problem on consumption with addictive habit formation in incomplete semimartingale markets. Introducing the set of auxiliary state processes and the modified dual space, we embed…
Portfolio managers often evaluate performance relative to benchmark, usually taken to be the Standard & Poor 500 stock index fund. This relative portfolio wealth is defined as the absolute portfolio wealth divided by wealth from investing…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following geometric Brownian motion as in the Black-Scholes model. Under a constant rate of consumption, we find the…
This paper studies a continuous-time optimal portfolio selection problem in the complete market for a behavioral investor whose preference is of the prospect type with probability distortion. The investor concerns about the terminal…
In life-cycle economics the Samuelson paradigm (Samuelson, 1969) states that the optimal investment is in constant proportions out of lifetime wealth composed of current savings and the present value of future income. It is well known that…
This paper investigates the optimal investment, consumption, and life insurance strategies for households under the impact of health shock risk. Considering the uncertainty of the future health status of family members, a non-homogeneous…
This paper studies a type of consumption preference where some adjustment costs are incured whenever the past spending maximum and the past spending minimum records are updated. This preference can capture the adverse effects of the…
We establish when the two problems of minimizing a function of lifetime minimum wealth and of maximizing utility of lifetime consumption result in the same optimal investment strategy on a given open interval $O$ in wealth space. To answer…
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…
We investigate the general structure of optimal investment and consumption with small proportional transaction costs. For a safe asset and a risky asset with general continuous dynamics, traded with random and time-varying but small…
The decision to annuitize wealth in retirement planning has become increasingly complex due to rising longevity risk and changing retirement patterns, including increased labor force participation at older ages. While an extensive…
This thesis investigates Merton's portfolio problem under two different rough Heston models, which have a non-Markovian structure. The motivation behind this choice of problem is due to the recent discovery and success of rough volatility…
This paper studies an optimal investment and consumption problem with heterogeneous consumption of basic and luxury goods, together with the choice of time for retirement. The utility for luxury goods is not necessarily a concave function.…
This paper studies an optimal consumption-investment problem for an investor whose instantaneous utility depends on both consumption and wealth, and the investor faces a general borrowing constraint that the investment amount in the risky…
The paper investigates the consumption-investment problem for an investor with Epstein-Zin utility in an incomplete market. A non-Markovian environment with unbounded parameters is considered, which is more realistic in practical financial…
In this paper, on the line e.g. of [COW00]) we investigate a model with habit formation and two types of substitute goods. Such family of models, even in the case of 1 good, are difficult to study since their utility function is not concave…
This paper investigates the consumption and risk taking decision of an economic agent with partial irreversibility of consumption decision by formalizing the theory proposed by Duesenberry (1949). The optimal policies exhibit a type of the…
We consider a problem of optimal investment with intermediate consumption and random endowment in an incomplete semimartingale model of a financial market. We establish the key assertions of the utility maximization theory assuming that…
The Merton investment-consumption problem is fundamental, both in the field of finance, and in stochastic control. An important extension of the problem adds transaction costs, which is highly relevant from a financial perspective but also…
The classical Merton investment problem predicts deterministic, state-dependent portfolio rules; however, laboratory and field evidence suggests that individuals often prefer randomized decisions leading to stochastic and noisy choices.…