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A preference change and discretionary stopping in a consumption and porfolio selection problem

Author

Listed:
  • Kyoung Jin Choi
  • Hyeng Keun Koo

Abstract

We study an optimal consumption-portfolio selection problem in which an economic agent is able to choose a discretionary stopping time in a continuous-time framework. We focus on studying the problem for the case where the agent’s preference changes around the stopping time. We obtain the optimal policy in an explicit form by solving free boundary value problems. If the agent’s coefficient of relative risk aversion becomes higher (lower) after the stopping time, then the optimal policy is to stop as soon as the wealth level touches down (up) to the critical wealth level. Copyright Springer-Verlag 2005

Suggested Citation

  • Kyoung Jin Choi & Hyeng Keun Koo, 2005. "A preference change and discretionary stopping in a consumption and porfolio selection problem," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 61(3), pages 419-435, July.
    • Handle: RePEc:spr:mathme:v:61:y:2005:i:3:p:419-435
    DOI: 10.1007/s001860400391
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    Cited by:

    1. Bayraktar, Erhan & Yao, Song, 2017. "Optimal stopping with random maturity under nonlinear expectations," Stochastic Processes and their Applications, Elsevier, vol. 127(8), pages 2586-2629.
    2. Guohui Guan & Qitao Huang & Zongxia Liang & Fengyi Yuan, 2020. "Retirement decision with addictive habit persistence in a jump diffusion market," Papers 2011.10166, arXiv.org, revised Feb 2024.
    3. Kyoung Jin Choi & Gyoocheol Shim & Yong Hyun Shin, 2008. "Optimal Portfolio, Consumption‐Leisure And Retirement Choice Problem With Ces Utility," Mathematical Finance, Wiley Blackwell, vol. 18(3), pages 445-472, July.
    4. Kwak, Minsuk & Shin, Yong Hyun & Choi, U Jin, 2011. "Optimal investment and consumption decision of a family with life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 48(2), pages 176-188, March.

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