Optimal consumption choice with intertemporal substitution
Bank, Peter ; Riedel, Frank
Ann. Appl. Probab., Tome 11 (2001) no. 2, p. 750-788 / Harvested from Project Euclid
We analyze the intertemporal utility maximization problem under uncertainty for the preferences proposed by Hindy, Huang and Kreps. Existence and uniqueness of optimal consumption plans are established under arbitrary convex portfolio constraints, including both complete and incomplete markets. For the complete market setting, we prove an infinite-dimensional version of the Kuhn –Tucker theorem which implies necessary and sufficient conditions for optimality. Using this characterization, we show that optimal plans prescribe consuming just enough to keep the induced level of satisfaction always above some stochastic lower bound. When uncertainty is generated by a Lévy process and agents exhibit constant relative risk aversion, we derive solutions in closed form. Depending on the structure of the underlying stochastics, optimal consumption occurs at rates, in gulps, or in a singular way.
Publié le : 2001-08-14
Classification:  Hindy-Huang-Kreps preferences,  intertemporal utility,  intertemporal substitution,  singular control problem,  Lévy processes,  90A10,  60H30
@article{1015345348,
     author = {Bank, Peter and Riedel, Frank},
     title = {Optimal consumption choice with intertemporal substitution},
     journal = {Ann. Appl. Probab.},
     volume = {11},
     number = {2},
     year = {2001},
     pages = { 750-788},
     language = {en},
     url = {http://dml.mathdoc.fr/item/1015345348}
}
Bank, Peter; Riedel, Frank. Optimal consumption choice with intertemporal substitution. Ann. Appl. Probab., Tome 11 (2001) no. 2, pp.  750-788. http://gdmltest.u-ga.fr/item/1015345348/