2004•Control theory & applicationsRequires access

Optimal consumption and investment policies in the marketwith abnormal fluctuating source

Guo Zi, WU Rang

Abstract

For the market with abnormal fluctuating source,the decision of consumption and investment is studied and a method that uses stochastic optimal control in financial theory is proposed.First of all,the stochastic model about uncertainty in financial market was introduced.By using Ito formula,the stochastic differential equation for fortune that was concerned with the decision of consumption and investment was given,the stochastic control model for consumption and investment was established.By using stochastic optimal control theory,the Hamilton_Jacobi_Bellman (HJB) equation for target function was gotten.By discussing the HJB equation,some pathwise function based optimal decision was acquired.Finally,the decision for Hara function was given.

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Available abstract

Key concepts: Hamilton–Jacobi–Bellman equation, Stochastic control, Stochastic differential equation, Consumption (sociology), Bellman equation, Optimal control, Investment (military), Financial market