Time-consistent investment and consumption strategies under a general discount function

Artikel

In the present paper, we investigate the Merton portfolio management problem in the context of non-exponential discounting, a context that gives rise to time-inconsistency of the decision-maker. We consider equilibrium policies within the class of open-loop controls that are characterized, in our context, by means of a variational method which leads to a stochastic system that consists of a flow of forward-backward stochastic differential equations and an equilibrium condition. An explicit representation of the equilibrium policies is provided for the special cases of power, logarithmic and exponential utility functions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 14 ; Year: 2021 ; Issue: 2 ; Pages: 1-27 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft
• Subject: equilibrium strategies ; investment-consumption problem ; Merton portfolio problem ; non-exponential discounting ; stochastic maximum principle ; stochastic optimization ; time inconsistency

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Alia, Ishak ; Chighoub, Farid ; Khelfallah, Nabil ; Vives, Josep
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2021

Further information

• DOI: doi:10.3390/jrfm14020086
• Handle: http://hdl.handle.net/10419/239502
• Last update: 10.03.2025, 11:42 AM CET