Optimal Consumption and Investment

2019 ◽  
pp. 351-363
Author(s):  
Tomas Björk
Keyword(s):  
General Theory ◽  
Mutual Fund ◽  
Optimal Consumption ◽  
Merton Problem ◽  
Optimal Consumption And Investment ◽  
Consumption And Investment Problems

In this chapter we apply the general theory from Chapter 25 to the study of optimal consumption and investment problems. We solve the Merton problem and we derive the Merton mutual fund theorems.

Deterministic mean-variance-optimal consumption and investment

Stochastics ◽  
2013 ◽  
Vol 85 (4) ◽  
pp. 620-636 ◽  
Author(s):  
Marcus Christiansen ◽  
Mogens Steffensen
Keyword(s):  
Optimal Consumption ◽  
Optimal Consumption And Investment ◽  
Mean Variance

scholarly journals State-Dependent Utility

2009 ◽  
Vol 46 (1) ◽  
pp. 55-70 ◽  
Author(s):  
Jaime A. Londoño
Keyword(s):  
General Setting ◽  
Optimal Consumption ◽  
Investment Strategies ◽  
Economic Agents ◽  
State Dependent ◽  
Portfolio Problem ◽  
Functional Forms ◽  
Secondary Result ◽  
The One ◽  
Optimal Consumption And Investment

We propose a new approach to utilities in (state) complete markets that is consistent with state-dependent utilities. Full solutions of the optimal consumption and portfolio problem are obtained in a very general setting which includes several functional forms for utilities used in the current literature, and consider general restrictions on allowable wealths. As a secondary result, we obtain a suitable representation for straightforward numerical computations of the optimal consumption and investment strategies. In our model, utilities reflect the level of consumption satisfaction of flows of cash in future times as they are (uniquely) valued by the market when the economic agents are making their consumption and investment decisions. The theoretical framework used for the model is the one proposed in Londoño (2008). We develop the martingale methodology for the solution of the problem of optimal consumption and investment in this setting.

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