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Asian Review of Financial Research, Vol., No..
pp.2287~2306
pp.2287~2306
The Capitalist Spirit: Optimal Consumption and Investment When Wealth Enters Utility Directly
Joonglee Jo Graduate Department of Financial Engineering, Ajou University, Graduate Department of Financial Engineering, Ajou University
Hyeng Keun Koo Graduate Department of Financial Engineering, Ajou University, Suwon 443-749, Korea
Shanjian Tang School of Mathematical Science, Fudan University, Shanghai 200433, China, Graduate Department of Financial Engineering, Ajou University
This paper studies a continuous-time model of consumption and investment with a utility function where wealth enters as an argument. The stochastic maximum principle is used to obtain a solution and compared with a newly formulated mar- tingale method. A concrete solution is obtained by a discrete time approximation. An agent with such a utility function typically exhibits decreasing marginal propen- sity to consume and an increasing marginal propensity to invest in the risky assets consistent with empirical evidence.
Joonglee Jo
Hyeng Keun Koo
Shanjian Tang
This paper studies a continuous-time model of consumption and investment with a utility function where wealth enters as an argument. The stochastic maximum principle is used to obtain a solution and compared with a newly formulated mar- tingale method. A concrete solution is obtained by a discrete time approximation. An agent with such a utility function typically exhibits decreasing marginal propen- sity to consume and an increasing marginal propensity to invest in the risky assets consistent with empirical evidence.