Projects per year
Abstract
The objective of this paper is to study the optimal consumption and portfolio choice problem of risk-controlled investors who strive to maximize total expected discounted utility of both consumption and terminal wealth. Risk is measured by the variance of terminal wealth, which introduces a nonlinear function of the expected value into the control problem. The control problem presented is no longer a standard stochastic control problem but rather, a mean field-type control problem. The optimal portfolio and consumption rules are obtained explicitly. Numerical results shed light on the importance of controlling variance risk. The optimal investment policy is nonmyopic, and consumption is not sacrificed.
| Original language | English |
|---|---|
| Pages (from-to) | 815-829 |
| Journal | Operations Research |
| Volume | 70 |
| Issue number | 2 |
| Online published | 9 Feb 2022 |
| DOIs | |
| Publication status | Published - Mar 2022 |
Funding
A. Bensoussan acknowledges research supported by the National Science Foundation [GrantDMS-1905459] and the SAR Hong Kong RGC [Grant GRF-14301321]. Z. Yan acknowledges researchsupported by the National Natural Science Foundation of China [Grant 11601186]
Research Keywords
- consumption and portfolio choice
- risk management
- meanfield-type control
- fixed point problem
- time inconsistency
- VARIANCE PORTFOLIO SELECTION
- VALUE-AT-RISK
- OPTIMIZATION
- INVESTMENT
- POLICIES
- MODEL
RGC Funding Information
- RGC-funded
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Dive into the research topics of 'A Risk Extended Version of Merton's Optimal Consumption and Portfolio Selection'. Together they form a unique fingerprint.Projects
- 1 Finished
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GRF: Mean Field Control with Partial Information
BENSOUSSAN, A. (Principal Investigator / Project Coordinator) & YAM, P.S.-C. (Co-Investigator)
1/01/17 → 1/12/20
Project: Research
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