Consumption processes and positively homogeneous projection properties

Tom Fischer

Papers from arXiv.org

Abstract: We constructively prove the existence of time-discrete consumption processes for stochastic money accounts that fulfill a pre-specified positively homogeneous projection property (PHPP) and let the account always be positive and exactly zero at the end. One possible example is consumption rates forming a martingale under the above restrictions. For finite spaces, it is shown that any strictly positive consumption strategy with restrictions as above possesses at least one corresponding PHPP and could be constructed from it. We also consider numeric examples under time-discrete and -continuous account processes, cases with infinite time horizons and applications to income drawdown and bonus theory.

Date: 2007-11
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Published in Fischer, T., 2008. Consumption processes and positively homogeneous projection properties. Finance & Stochastics 12 (3), 357-380

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