A Stochastic Control Model of Investment and Consumption with Applications to Financial Economics
-
Md. Azizul Baten
and
Ruzelan Khalid
Abstract
This study considers a stochastic control model in which an economic unit has productive capital and liabilities in the form of debt. The worth of capital changes over time through investment and random Brownian fluctuations in the unit price of capital. Income from production is also subject to the random Brownian fluctuations. The existence of the solutions to the associated Hamilton Jacobi Bellman equation for this model is established and the optimal policies are characterized. The optimal advertising rate as a function of the market share, the optimal consumption rate and the fraction of the wealth invested in stock at any time are obtained. The worth of the capital and the optimal consumption policy are derived for the stochastic optimal investment consumption model associated with the Hamilton Jacobi Bellman equation. Analysis and numerical simulations are then presented.
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Articles in the same Issue
- Frontmatter
- A Stochastic Control Model of Investment and Consumption with Applications to Financial Economics
- Bayesian Estimation of an M/M/𝑅 Queue with Heterogeneous Servers Using Markov Chain Monte Carlo Method
- The Reflected-Shifted-Truncated Lindley Distribution with Applications
- The Marshall–Olkin Transmuted-G Family of Distributions
- Time-Dependent Stress-Strength Reliability Models with Phase-Type Cycle Times
Articles in the same Issue
- Frontmatter
- A Stochastic Control Model of Investment and Consumption with Applications to Financial Economics
- Bayesian Estimation of an M/M/𝑅 Queue with Heterogeneous Servers Using Markov Chain Monte Carlo Method
- The Reflected-Shifted-Truncated Lindley Distribution with Applications
- The Marshall–Olkin Transmuted-G Family of Distributions
- Time-Dependent Stress-Strength Reliability Models with Phase-Type Cycle Times
