Stochastic volatility asymptotics for optimal subsistence consumption and investment with bankruptcy
- Authors
- Chen, Kexin; Chiu, Mei Choi; Shin, Yong Hyun; Wong, Hoi Ying
- Issue Date
- Dec-2019
- Publisher
- Society for Industrial and Applied Mathematics Publications
- Keywords
- Asymptotic optimality; Optimal investment and consumption; Perturbation; Stochastic volatility; Subsistence consumption
- Citation
- SIAM Journal on Financial Mathematics, v.10, no.4, pp 977 - 1005
- Pages
- 29
- Journal Title
- SIAM Journal on Financial Mathematics
- Volume
- 10
- Number
- 4
- Start Page
- 977
- End Page
- 1005
- URI
- https://scholarworks.sookmyung.ac.kr/handle/2020.sw.sookmyung/2699
- DOI
- 10.1137/19M124681X
- ISSN
- 1945-497X
- Abstract
- Subsistence consumption and investment problems with bankruptcy are classic constrained stochastic optimal control problems in financial economics, where the consumption rate should be greater than a positive number and the investor faces a bankruptcy payment. We derive a novel asymptotic solution to this problem under the fast mean-reverting stochastic volatility model. We rigorously prove that the zeroth-order suboptimal pair of consumption and investment strategies leads to the first-order correction of the objective function in the form of v(0) + √ϵv(1). In addition, this zerothorder suboptimal consumption-investment pair is asymptotically optimal in a class of admissible trading strategy pairs. © 2019 Society for Industrial and Applied Mathematics.
- Files in This Item
-
Go to Link
- Appears in
Collections - 이과대학 > 수학과 > 1. Journal Articles
Items in ScholarWorks are protected by copyright, with all rights reserved, unless otherwise indicated.