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A Concise Characterization Of Optimal Consumption With Logarithmic Preferences

Author

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  • RALF KORN

    (Department of Mathematics, University of Kaiserslautern, Erwin-Schrödinger-Straße, 67663 Kaiserslautern, Germany)

  • FRANK THOMAS SEIFRIED

    (Department of Mathematics, University of Kaiserslautern, Erwin-Schrödinger-Straße, 67663 Kaiserslautern, Germany)

Abstract

In a general semi-martingale financial market with possibly nonlinear wealth dynamics, incomplete information, and ambiguity, we show that the optimal consumption decision of an agent with logarithmic preferences can be separated from the agent's investment decisions. Using minimal assumptions and mathematical machinery, we demonstrate that the optimal consumption/wealth ratio is deterministic, and we derive an explicit formula for it.

Suggested Citation

  • Ralf Korn & Frank Thomas Seifried, 2013. "A Concise Characterization Of Optimal Consumption With Logarithmic Preferences," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(06), pages 1-7.
  • Handle: RePEc:wsi:ijtafx:v:16:y:2013:i:06:n:s0219024913500350
    DOI: 10.1142/S0219024913500350
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    Cited by:

    1. Kristoffer Lindensjö, 2016. "Optimal investment and consumption under partial information," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 83(1), pages 87-107, February.
    2. Kristoffer Lindensjö, 2016. "Optimal investment and consumption under partial information," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 83(1), pages 87-107, February.

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