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Optimal consumption and portfolio policies with the consumption habit constraints and the terminal wealth downside constraints

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  • Yuan, Haili
  • Hu, Yijun

Abstract

In this paper, we consider the optimal consumption and portfolio policies with the consumption habit constraints and the terminal wealth downside constraints, that is, here the consumption rate is greater than or equal to some nonnegative process, and the terminal wealth is no less than some positive constant. Using the martingale approach, we get the optimal consumption and portfolio policies.

Suggested Citation

  • Yuan, Haili & Hu, Yijun, 2009. "Optimal consumption and portfolio policies with the consumption habit constraints and the terminal wealth downside constraints," Insurance: Mathematics and Economics, Elsevier, vol. 45(3), pages 405-409, December.
    • Handle: RePEc:eee:insuma:v:45:y:2009:i:3:p:405-409
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    References listed on IDEAS

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    1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
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    4. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    5. Ralf Korn, 2005. "Optimal portfolios with a positive lower bound on final wealth," Quantitative Finance, Taylor & Francis Journals, vol. 5(3), pages 315-321.
    6. Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October.
    7. Peter Lakner & Lan Ma Nygren, 2006. "Portfolio Optimization With Downside Constraints," Mathematical Finance, Wiley Blackwell, vol. 16(2), pages 283-299, April.
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    Cited by:

    1. Lim, Byung Hwa & Lee, Ho-Seok & Shin, Yong Hyun, 2018. "The effects of pre-/post-retirement downside consumption constraints on optimal consumption, portfolio, and retirement," Finance Research Letters, Elsevier, vol. 25(C), pages 213-221.

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