Portfolio Selection with Subsistence Consumption Constraints and CARA Utility. (16th April 2014)

• Record Type: Journal Article
• Authors: Shim, Gyoocheol; Shin, Yong Hyun
• Other Names: Gupta Pankaj Academic Editor.
• Is Part Of: Mathematical problems in engineering. Volume 2014(2014)
• Publication Date: 2014-04-16
• Subjects: Engineering mathematics -- Periodicals; 510.2462
• DOI: 10.1155/2014/153793
• Languages: English
• ISSNs: 1024-123X

Abstract

Abstract : 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.