 Optimal consumption and portfolio selection problems under loss aversion with downside consumption constraintsJingjing Song, Xiuchun Bi, Rong Li and Shuguang Zhang Applied Mathematics and Computation, 2017, vol. 299, issue C, 80-94 Abstract: This paper investigates continuous-time optimal portfolio and consumption problems under loss aversion in an infinite horizon. The investor’s goal is to choose optimal portfolio and consumption policies to maximize total discounted S-shaped utility from consumption. The consumption rate process is subject to a downside constraint. The optimal consumption and portfolio policies are obtained through the martingale method and replication technique. Numerical results indicate the differences between the loss averse investor and the constant relative risk averse (CRRA) investor on the optimal consumption and portfolio policies: the loss averse investor likes consuming more money but exposing less to risk than that of the CRRA investor, and the optimal wealth, as a function of state price density, drops faster for the CRRA investor than that for the loss averse investor. Keywords: Loss aversion; Optimal portfolio and consumption; Consumption constraints; Martingale method (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:299:y:2017:i:c:p:80-94 DOI: 10.1016/j.amc.2016.11.029 Access Statistics for this article Applied Mathematics and Computation is currently edited by Theodore Simos More articles in Applied Mathematics and Computation from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.