Portfolio Selection with Subsistence Consumption Constraints and CARA Utility | Zendy

Gyoocheol Shim | Zendy; Yong Hyun Shin | Zendy

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Portfolio Selection with Subsistence Consumption Constraints and CARA Utility

Author(s) -

Gyoocheol Shim,

Yong Hyun Shin

Publication year - 2014

Publication title -

mathematical problems in engineering

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.262

H-Index - 62

eISSN - 1026-7077

pISSN - 1024-123X

DOI - 10.1155/2014/153793

Subject(s) - subsistence agriculture , portfolio , consumption (sociology) , constraint (computer aided design) , constant (computer programming) , mathematical optimization , economics , portfolio optimization , selection (genetic algorithm) , microeconomics , dynamic programming , computer science , mathematical economics , econometrics , mathematics , financial economics , agriculture , artificial intelligence , ecology , social science , geometry , sociology , programming language , biology

We consider the optimal consumption and portfolio choice problem with constant absolute risk aversion (CARA) utility and a subsistence consumption constraint. A subsistence consumption constraint means there exists a positive constant minimum level for the agent’s optimal consumption. We use the dynamic programming approach to solve the optimization problem and also give the verification theorem. We illustrate the effects of the subsistence consumption constraint on the optimal consumption and portfolio choice rules by the numerical results.

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