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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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:||01 Dec 2010 18:03|
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