Related papers: On Investment-Consumption with Regime-Switching
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
In this paper, we consider the gradual-impulse control problem of continuous-time Markov decision processes, where the system performance is measured by the expectation of the exponential utility of the total cost. We prove, under very…
This paper characterizes differentiable and subgame Markov perfect equilibria in a continuous time intertemporal decision problem with non-constant discounting. Capturing the idea of non commitment by letting the commitment period being…
An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general…
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…
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…
Regime-switching models, in particular Hidden Markov Models (HMMs) where the switching is driven by an unobservable Markov chain, are widely-used in financial applications, due to their tractability and good econometric properties. In this…
This paper studies the dividend and capital injection problem under a diffusion risk model with general discount functions. A proportional cost is imposed when injecting capitals. For exponential discounting as time-consistent benchmark, we…
The valuation process that economic agents undergo for investments with uncertain payoff typically depends on their statistical views on possible future outcomes, their attitudes toward risk, and, of course, the payoff structure itself.…
We study the effect of liquidity freezes on an economic agent optimizing her utility of consumption in a perturbed Black-Scholes-Merton model. The single risky asset follows a geometric Brownian motion but is subject to liquidity shocks,…
We consider the problem of governing systemic risk in a banking system model. The banking system model consists in an initial value problem for a system of stochastic differential equations whose dependent variables are the log-monetary…
In this article we consider an optimization problem of expected utility maximization of continuous-time trading in a financial market. This trading is constrained by a benchmark for a utility-based shortfall risk measure. The market…
We study the continuous time portfolio optimization model on the market where the mean returns of individual securities or asset categories are linearly dependent on underlying economic factors. We introduce the functional $Q_\gamma$…
This paper studies a continuous-time portfolio selection problem under a general distribution of random risk aversion (RRA). We provide a complete characterization of all deterministic equilibrium strategies in closed form. Our results show…
Metastability is a phenomenon observed in stochastic systems which stay in a false-equilibrium within a region of its state space until the occurrence of a sequence of rare events that leads to an abrupt transition to a different region.…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…
In intertemporal settings, the multiattribute utility theory of Kihlstrom and Mirman suggests the application of a concave transform of the lifetime utility index. This construction, while allowing time and risk attitudes to be separated,…
This paper considers the Merton portfolio management problem. We are concerned with non-exponential discounting of time and this leads to time inconsistencies of the decision maker. Following Ekeland and Pirvu 2006, we introduce the notion…
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…
We introduce a non-zero-sum game between a government and a legislative body to study the optimal level of debt. Each player, with different time preferences, can intervene on the stochastic dynamics of the debt-to-GDP ratio via singular…