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 Firstâ„¢, 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
Date Deposited: 30 Nov 2010 14:38
Last Modified: 21 Apr 2015 23:13
URI: http://eprints.luiss.it/id/eprint/762


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