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Merton problem with one additional indivisible asset

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  • Jakub Trybu{l}a

Abstract

In this paper we consider a modification of the classical Merton portfolio optimization problem. Namely, an investor can trade in financial asset and consume his capital. He is additionally endowed with a one unit of an indivisible asset which he can sell at any time. We give a numerical example of calculating the optimal time to sale the indivisible asset, the optimal consumption rate and the value function.

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  • Jakub Trybu{l}a, 2014. "Merton problem with one additional indivisible asset," Papers 1403.3223, arXiv.org.
    • Handle: RePEc:arx:papers:1403.3223
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    References listed on IDEAS

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    1. Vicky Henderson & David Hobson, 2013. "Risk Aversion, Indivisible Timing Options, and Gambling," Operations Research, INFORMS, vol. 61(1), pages 126-137, February.
    2. Vicky Henderson & David Hobson, 2008. "An explicit solution for an optimal stopping/optimal control problem which models an asset sale," Papers 0806.4061, arXiv.org, revised Nov 2008.
    3. Jonathan Evans & Vicky Henderson & David Hobson, 2008. "Optimal Timing For An Indivisible Asset Sale," Mathematical Finance, Wiley Blackwell, vol. 18(4), pages 545-567, October.
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