On the Verification Theorem of Dynamic Portfolio-Consumption Problems with Stochastic Market Price of Risk

In this paper, we study a dynamic portfolio-consumption optimization problem when the market price of risk is driven by linear Gaussian processes. We show sufficient conditions to verify that an explicit solution derived from the Hamilton-Jacobi-Bellman equation is in fact an optimal solution to the...

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Bibliographic Details
Published inAsia-Pacific financial markets Vol. 18; no. 2; pp. 151 - 166
Main Authors Honda, Toshiki, Kamimura, Shoji
Format Journal Article
LanguageEnglish
Published Boston Springer US 01.05.2011
Springer
Springer Nature B.V
SeriesAsia-Pacific Financial Markets
Subjects
Econometrics
Economic Theory/Quantitative Economics/Mathematical Methods
Economics and Finance
Expected utility
Finance
Hamilton-Jacobi-Bellman equation
International Economics
Investors
Macroeconomics/Monetary Economics//Financial Economics
Market prices
Normal distribution
Optimal portfolios
Optimization
Optimization techniques
Ordinary differential equations
Portfolio investments
Risk management
Stochastic market price of risk
Studies
Utility functions
Verification theorem
Stochastic market price of risk
Optimal portfolios
Hamilton-Jacobi-Bellman equation
Verification theorem
Online AccessGet full text
ISSN1387-2834
1573-6946
DOI10.1007/s10690-010-9128-y

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Summary:In this paper, we study a dynamic portfolio-consumption optimization problem when the market price of risk is driven by linear Gaussian processes. We show sufficient conditions to verify that an explicit solution derived from the Hamilton-Jacobi-Bellman equation is in fact an optimal solution to the portfolio selection problem.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
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ISSN:1387-2834
1573-6946
DOI:10.1007/s10690-010-9128-y