Optimal consumption policies in illiquid markets
Cretarola, Alessandra and Gozzi, Fausto and Pham, Huyen and Tankov, Peter (2008) Optimal consumption policies in illiquid markets. [Working Paper]. p. 30. Working Papers (hal-00292673_v1).
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Official URL: http://arxiv.org/abs/0807.0326
We investigate optimal consumption policies in the liquidity risk model introduced in Pham and Tankov (2007). Our main result is to derive smoothness results for the value functions of the portfolio/consumption choice problem. As an important consequence, we can prove the existence of the optimal control (portfolio/consumption strategy) which we characterize both in feedback form in terms of the derivatives of the value functions and as the solution of a second-order ODE. Finally, numerical illustrations of the behavior of optimal consumption strategies between two trading dates are given.
|Item Type:||Report / Paper (Working Paper)|
|Research documents and activity classification:||Working Papers > Refereed Working Papers / of international relevance|
|Divisions:||Department of Business and Management|
|Additional Information:||The paper has been accepted by "Finance and Stochastics", Online First™, 10 March 2010.|
|MIUR Scientific Area:||Area 13 - Economics and Statistics > SECS-S/06 Mathematics for Economics, Actuarial Studies and Finance|
|Deposited By:||Maria Teresa Nistico|
|Deposited On:||30 Nov 2010 15:38|
|Last Modified:||28 May 2013 20:33|
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