ScholarWorks@숙명여자대학교

초록

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.

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