Optimal consumption and investment under time-varying relative risk aversion

Mogens Steffensen

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 5, 659-667

Abstract: We consider the continuous time consumption-investment problem originally formalized and solved by Merton in case of constant relative risk aversion. We present a complete solution for the case where relative risk aversion with respect to consumption varies with time, having in mind an investor with age-dependent risk aversion. This provides a new motivation for life-cycle investment rules. We study the optimal consumption and investment rules, in particular in the case where the relative risk aversion with respect to consumption is increasing with age.

Keywords: Merton's; problem; Hamilton-Jacobi-Bellman; equation; Marginal; indirect; utility; Life-cycle; investment (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:5:p:659-667

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