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Optimal investment and consumption with stochastic dividends
Author(s) -
Wang Xikui,
Wang Yan
Publication year - 2010
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.823
Subject(s) - dividend , consumption (sociology) , economics , poisson distribution , investment (military) , econometrics , investment strategy , rate of return , financial market , mathematical economics , microeconomics , actuarial science , mathematics , finance , statistics , social science , sociology , politics , political science , law , profit (economics)
We use the statistical model of bandit processes to formulate and solve two kinds of optimal investment and consumption problems. The payoffs from the investment are dividend payments with fixed return rates, but the payment frequency is stochastic following a Poisson distribution. The financial market consists of assets which follow Poisson distributions with known or unknown intensity rates. Two kinds of consumption patterns are defined and the optimality of the myopic strategy, the Gittins index strategy, and the play‐the‐winner strategy are discussed. Copyright © 2009 John Wiley & Sons, Ltd.