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Investment optimization under constraints

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  • Nguyen-Thanh Long

Abstract

We extend the duality approach developed by Kramkov and Schachermayer (1999) to cover the case of a general financial framework that includes models with some “imperfection”, such as constrained proportion portfolios, labor income, random endowment and large investor. General objective functions such as deterministic or random utility functions and shortfall risk loss functions are considered. Under a minimal set of assumptions equivalent to the asymptotic elasticity condition imposed on the agent’s utility function, we present an optimal investment theorem and, at the same time, address the corresponding dual problem. Copyright Springer-Verlag 2004

Suggested Citation

  • Nguyen-Thanh Long, 2004. "Investment optimization under constraints," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 60(2), pages 175-201, October.
    • Handle: RePEc:spr:mathme:v:60:y:2004:i:2:p:175-201
    DOI: 10.1007/s001860400368
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    References listed on IDEAS

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    1. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
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    5. Cuoco, Domenico, 1997. "Optimal Consumption and Equilibrium Prices with Portfolio Constraints and Stochastic Income," Journal of Economic Theory, Elsevier, vol. 72(1), pages 33-73, January.
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    Cited by:

    1. Ramírez, Hugo E. & Serrano, Rafael, 2025. "Optimal investment with insurable background risk and nonlinear portfolio allocation frictions," Applied Mathematics and Computation, Elsevier, vol. 485(C).

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    More about this item

    Keywords

    Stochastic Optimization; Investment Optimization; Duality Theory; Convex and State Constraints; Optional Decomposition; G11; 93E20; 90A09; 90A10;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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