Abstract
This paper analyzes the investment-consumption problem of a risk
averse investor in discrete-time model. We assume that the return of a risky
asset depends on the economic environments and that the economic environments are ranked and described using a Markov chain with an absorbing state
which represents the bankruptcy state. We formulate the investor’s decision as
an optimal stochastic control problem. We show that the optimal investment
strategy is the same as that in Cheung and Yang [5], and a closed form expression of the optimal consumption strategy has been obtained. In addition, we
investigate the impact of economic environment regime on the optimal strategy. We employ some tools in stochastic orders to obtain the properties of the
optimal strategy.
averse investor in discrete-time model. We assume that the return of a risky
asset depends on the economic environments and that the economic environments are ranked and described using a Markov chain with an absorbing state
which represents the bankruptcy state. We formulate the investor’s decision as
an optimal stochastic control problem. We show that the optimal investment
strategy is the same as that in Cheung and Yang [5], and a closed form expression of the optimal consumption strategy has been obtained. In addition, we
investigate the impact of economic environment regime on the optimal strategy. We employ some tools in stochastic orders to obtain the properties of the
optimal strategy.
| Original language | English |
|---|---|
| Pages (from-to) | 315-332 |
| Journal | Discrete and Continuous Dynamical Systems - Series B |
| Volume | 8 |
| Issue number | 2 |
| Publication status | Published - 2007 |
| Externally published | Yes |