The Merton Problem with a Drawdown Constraint on Consumption
Add to your list(s)
Download to your calendar using vCal
If you have a question about this talk, please contact Martin Taylor.
We work in the framework of the Merton problem but we impose a drawdown constraint on the consumption process. This means that consumption can never fall below a fixed proportion of the running maximum of past consumption. In terms of economic motivation, this constraint represents a type of habit formation where the investor is reluctant to let his standard of living fall too far from the maximum standard achieved to date. We use techniques from stochastic optimal control and duality theory to obtain our candidate value function and optimal controls, which are then verified.
This talk is part of the Cambridge Analysts' Knowledge Exchange series.
This talk is included in these lists:
Note that ex-directory lists are not shown.
|