Maximum Principle for a Stochastic Optimal Control Problem and Application to Portfolio/Consumption Choice

W. S. Xu
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W. S. Xu: Zhejiang University

Journal of Optimization Theory and Applications, 1998, vol. 98, issue 3, No 11, 719-731

Abstract: Abstract We consider mainly an optimal control problem motivated by a portfolio and consumption choice problem in a financial market where the utility of the investor is assumed to have a given homogeneous form. A Pontryagin local maximum principle is obtained by using classical variational methods. We apply the result to make optimal portfolio and consumption decisions for the problem under consideration. The optimal selection coincides with the one obtained in Refs. 1 and 2, where the Bellman dynamic programming principle was used.

Keywords: Stochastic optimal control; variational methods; stochastic maximum principle; portfolio and consumption choices; financial markets (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1023/A:1022636332265

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