Open AccessGeneral Closed-Form Solutions to the Dynamic Optimization Problem in Incomplete Markets
Author(s) -
Moawia Alghalith
Publication year - 2011
Publication title -
applied mathematics
Language(s) - English
Resource type - Journals
eISSN - 2152-7393
pISSN - 2152-7385
DOI - 10.4236/am.2011.24054
Subject(s) - portfolio , mathematical optimization , incomplete markets , exponential function , portfolio optimization , consumption (sociology) , function (biology) , dynamic programming , optimization problem , computer science , mathematics , economics , microeconomics , mathematical analysis , social science , evolutionary biology , sociology , financial economics , biology
In this paper, we provide general closed-form solutions to the incomplete-market random-coefficient dynamic optimization problem without the restrictive assumption of exponential or HARA utility function. Moreover, we explicitly express the optimal portfolio as a function of the optimal consumption and show the impact of optimal consumption on the optimal portfolio