Journal of the Chungcheong Mathematical Society (충청수학회지)

The Chungcheong Mathematical Society (충청수학회)
권호 표지
DOI QR코드

DOI QR Code

AN OPTIMAL CONSUMPTION AND INVESTMENT PROBLEM WITH LABOR INCOME AND REGIME SWITCHING

  • Received : 2014.01.10
  • Accepted : 2014.04.07
  • Published : 2014.05.15
Download PDF
⟨ Previous Next ⟩

Abstract

I use the dynamic programming approach to study the optimal consumption and investment problem with regime-switching and constant labor income. I derive the optimal solutions in closed-form with constant absolute risk aversion (CARA) utility and constant disutility.

Keywords

References

  1. B. G. Jang, H. K. Koo, H. Liu, and M. Loewenstein, Liquidity Premia and Transaction Costs, J. Finance 62 (2007), 2329-2366. https://doi.org/10.1111/j.1540-6261.2007.01277.x
  2. I. Karatzas, J. P. Lehoczky, S. P. Sethi, and S. E. Shreve, Explicit Solution of a General Consumption/Investment Problem, Math. Oper. Res. 11 (1986), 261-294. https://doi.org/10.1287/moor.11.2.261
  3. R. C. Merton, Lifetime Portfolio Selection under Uncertainty: the Continuous-Time Case, Rev. Econ. Stat. 51 (1969), 247-257. https://doi.org/10.2307/1926560
  4. R. C. Merton, Optimum Consumption and Portfolio Rules in a Continuous-Time Model, J. Econ. Theory 3 (1971), 373-413. https://doi.org/10.1016/0022-0531(71)90038-X
  5. Y. H. Shin, Portfolio Selection with Regime-Switching: Dynamic Programming Approaches, J. Chungcheong Math. Soc. 25 (2012), 277-281. https://doi.org/10.14403/jcms.2012.25.2.277
  6. Y. H. Shin, Optimal Consumption and Investment Problem with Regime-Switching and CARA Utility, J. Chungcheong Math. Soc. 26 (2013), 85-90. https://doi.org/10.14403/jcms.2013.26.1.085
  7. L. R. Sotomayor and A. Cadenillas, Explicit Solutions of Consumption-Investment Problems in Financial Markets with Regime Switching, Math. Finance 19 (2009), 251-279. https://doi.org/10.1111/j.1467-9965.2009.00366.x