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Optimal Investment‐Consumption Strategy under Inflation in a Markovian Regime‐Switching Market

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  • Huiling Wu

Abstract

This paper studies an investment‐consumption problem under inflation. The consumption price level, the prices of the available assets, and the coefficient of the power utility are assumed to be sensitive to the states of underlying economy modulated by a continuous‐time Markovian chain. The definition of admissible strategies and the verification theory corresponding to this stochastic control problem are presented. The analytical expression of the optimal investment strategy is derived. The existence, boundedness, and feasibility of the optimal consumption are proven. Finally, we analyze in detail by mathematical and numerical analysis how the risk aversion, the correlation coefficient between the inflation and the stock price, the inflation parameters, and the coefficient of utility affect the optimal investment and consumption strategy.

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Handle: RePEc:wly:jnddns:v:2016:y:2016:i:1:n:9606497
DOI: 10.1155/2016/9606497
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