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Robust optimization of consumption with random endowment

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  • Wittmüß, Wiebke

Abstract

We consider the problem of optimal consumption for an investor who is risk and uncertainty avers. We model these preferences of the investor with the help of a convex risk-measure. Apart from consumption the agent has the possibility to invest initial capital and random endowment in a market where stock-prices are semimartingales. We formulate this as a maximin problem that will be solved by duality methods.

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  • Wittmüß, Wiebke, 2006. "Robust optimization of consumption with random endowment," SFB 649 Discussion Papers 2006-063, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2006-063
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    References listed on IDEAS

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    1. Lars Peter Hansen & Thomas J Sargent, 2014. "Robust Control and Model Uncertainty," World Scientific Book Chapters, in: UNCERTAINTY WITHIN ECONOMIC MODELS, chapter 5, pages 145-154, World Scientific Publishing Co. Pte. Ltd..
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    3. Hernández-Hernández Daniel & Schied Alexander, 2006. "Robust utility maximization in a stochastic factor model," Statistics & Risk Modeling, De Gruyter, vol. 24(1/2006), pages 1-17, July.
    4. Schied, Alexander, 2005. "Optimal investments for risk- and ambiguity-averse preferences: A duality approach," SFB 649 Discussion Papers 2005-051, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    5. Hernández-Hernández Daniel & Schied Alexander, 2006. "Robust utility maximization in a stochastic factor model," Statistics & Risk Modeling, De Gruyter, vol. 24(1), pages 109-125, July.
    6. 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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    Cited by:

    1. Schied, Alexander, 2007. "Robust optimal control for a consumption-investment problem," SFB 649 Discussion Papers 2007-026, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.

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    More about this item

    Keywords

    duality theory; risk measures; optimal consumption; model uncertainty;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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