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The Opportunity Process for Optimal Consumption and Investment with Power Utility

  • Marcel Nutz
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    We study the utility maximization problem for power utility random fields in a semimartingale financial market, with and without intermediate consumption. The notion of an opportunity process is introduced as a reduced form of the value process of the resulting stochastic control problem. We show how the opportunity process describes the key objects: optimal strategy, value function, and dual problem. The results are applied to obtain monotonicity properties of the optimal consumption.

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    Paper provided by in its series Papers with number 0912.1879.

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    Date of creation: Dec 2009
    Date of revision: Jun 2010
    Publication status: Published in Math. Financ. Econ., 3(3):139-159, 2010
    Handle: RePEc:arx:papers:0912.1879
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    1. Sasha F. Stoikov & Thaleia Zariphopoulou, 2005. "Dynamic Asset Allocation And Consumption Choice In Incomplete Markets ," Australian Economic Papers, Wiley Blackwell, vol. 44(4), pages 414-454, December.
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