Optimal consumption policies in illiquid markets
AbstractWe investigate optimal consumption policies in the liquidity risk model introduced in Pham and Tankov (2007). Our main result is to derive smoothness results for the value functions of the portfolio/consumption choice problem. As an important consequence, we can prove the existence of the optimal control (portfolio/consumption strategy) which we characterize both in feedback form in terms of the derivatives of the value functions and as the solution of a second-order ODE. Finally, numerical illustrations of the behavior of optimal consumption strategies between two trading dates are given.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Working Papers with number hal-00292673.
Date of creation: 02 Jul 2008
Date of revision:
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00292673/en/
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Illiquid market; optimal consumption; integrodifferential equations; viscosity solutions; semiconcavity; sub(super) differentials; optimal control;
Other versions of this item:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-14 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Huy�n Pham & Peter Tankov, 2008. "A Model Of Optimal Consumption Under Liquidity Risk With Random Trading Times," Mathematical Finance, Wiley Blackwell, vol. 18(4), pages 613-627.
- Paul Gassiat & Fausto Gozzi & Huy\^en Pham, 2011.
"Investment/consumption problem in illiquid markets with regime-switching,"
1107.4210, arXiv.org, revised Apr 2012.
- Paul Gassiat & Fausto Gozzi & Huyen Pham, 2011. "Investment/consumption problem in illiquid markets with regimes switching," Working Papers hal-00610214, HAL.
- Paul Gassiat & Huyen Pham & Mihai Sirbu, 2009. "Optimal investment on finite horizon with random discrete order flow in illiquid markets," Papers 0907.2203, arXiv.org.
- Stefano Baccarin, 2013. "Optimal Consumption of a Generalized Geometric Brownian Motion with Fixed and Variable Intervention Costs," Working papers 021, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
- Michael Ludkovski & Hyekyung Min, 2010. "Illiquidity Effects in Optimal Consumption-Investment Problems," Papers 1004.1489, arXiv.org, revised Sep 2010.
- Salvatore Federico & Paul Gassiat & Fausto Gozzi, 2012. "Impact of time illiquidity in a mixed market without full observation," Papers 1211.1285, arXiv.org.
- Castellano, Rosella & Cerqueti, Roy, 2014. "Mean–Variance portfolio selection in presence of infrequently traded stocks," European Journal of Operational Research, Elsevier, vol. 234(2), pages 442-449.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.