Portfolio Selection with Subsistence Consumption Constraints and CARA Utility

We consider the optimal consumption and portfolio choice problem with constant absolute risk aversion (CARA) utility and a subsistence consumption constraint. A subsistence consumption constraint means there exists a positive constant minimum level for the agent's optimal consumption. We use the dynamic programming approach to solve the optimization problem and also give the verification theorem. We illustrate the effects of the subsistence consumption constraint on the optimal consumption and portfolio choice rules by the numerical results

Optimal consumption-investment with critical wealth level

We consider a consumption-investment problem in which the relevant economic conditions change, depending on whether the wealth exceeds a critical level or not. We propose a dynamic programming method to solve the problem by dividing the problem into subproblems split by wealth levels, and imposing a freeze condition at the boundaries. We then join the solutions of the subproblems so that the resulting value function is piecewise C-2. The methodology is illustrated through an application to a problem with nonnegative life insurance constraint. (C) 2016 Elsevier Inc. All rights reserved.11Nsciescopu

Portfolio Selection with Subsistence Consumption Constraints and CARA Utility

We consider the optimal consumption and portfolio choice problem with constant absolute risk aversion (CARA) utility and a subsistence consumption constraint. A subsistence consumption constraint means there exists a positive constant minimum level for the agent’s optimal consumption. We use the dynamic programming approach to solve the optimization problem and also give the verification theorem. We illustrate the effects of the subsistence consumption constraint on the optimal consumption and portfolio choice rules by the numerical results

A Wealth-Dependent Investment Opportunity Set: Its Effect on Optimal Consumption and Portfolio Decisions

We consider a consumption and investment problem where an investor¡¯s investment opportunity gets enlarged when she becomes rich enough, i.e., when her wealth touches a critical level. We derive optimal consumption and investment rules assuming that the investor has a time-separable von Neumann-Morgenstern utility function. An interesting feature of optimal rules is that the investor consumes less and takes more risk in risky assets if the investor expects that she will have a better investment opportunity when her wealth reaches a critical level.Consumption, Investment, Utility function, Brownian motion, Optimal strategy, Investment opportunity, Critical wealth level