Abstract
We investigate the problem of optimal investment and consumption of Merton in the case of discrete markets in an infinite horizon. We suppose that there is frictions in the markets due to loss in trading. These frictions are modeled through nonlinear penalty functions and the classical transaction cost and liquidity models are included in this formulation. In this context, the solvency region is defined taking into account this penalty function and every investigator have to maximize his utility, that is derived from consumption, in this region. We give the dynamic programming of the model and we prove the existence and uniqueness of the value function.
| Original language | American English |
|---|---|
| Pages (from-to) | 1323-1331 |
| Number of pages | 9 |
| Journal | Journal of Industrial and Management Optimization |
| Volume | 12 |
| Issue number | 4 |
| DOIs | |
| State | Published - 2016 |
| Externally published | Yes |
ASJC Scopus subject areas
- Business and International Management
- Strategy and Management
- Control and Optimization
- Applied Mathematics
Keywords
- After liquidation value
- Discrete market
- Dynamic programming
- Infinite horizon
- Market frictions
- Merton problem
- Value function
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