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OPTIMAL INVESTMENT MODELS WITH MINIMUM CONSUMPTION CRITERIA
Author(s) -
FLEMING WENDELL H.
Publication year - 2005
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/j.1467-8454.2005.00273.x
Subject(s) - consumption (sociology) , economics , investment (military) , production (economics) , portfolio , variable (mathematics) , debt , mathematical optimization , econometrics , mathematics , dynamic programming , optimal control , microeconomics , finance , social science , sociology , politics , political science , law , mathematical analysis
This paper considers a max‐min formulation of multistage optimal investment and consumption problems, with uncertainties in the form of variable productivities of capital and interest rates. The criterion of control performance is minimum consumption over time, weighted by a coefficient which indicates the likelihood of possible disturbance sequences. A dynamic programming method is used. Explicit results for a max‐min formulation of the Merton portfolio optimisation problem are obtained. A production‐consumption‐debt model arising in international finance is also considered.