Optimal consumption and investment with bounded downside risk for power utility functions

Claudia Kluppelberg and Serguei Pergamenchtchikov
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Claudia Kluppelberg: LMRS
Serguei Pergamenchtchikov: LMRS

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Abstract: We investigate optimal consumption and investment problems for a Black-Scholes market under uniform restrictions on Value-at-Risk and Expected Shortfall. We formulate various utility maximization problems, which can be solved explicitly. We compare the optimal solutions in form of optimal value, optimal control and optimal wealth to analogous problems under additional uniform risk bounds. Our proofs are partly based on solutions to Hamilton-Jacobi-Bellman equations, and we prove a corresponding verification theorem. This work was supported by the European Science Foundation through the AMaMeF programme.

Date: 2010-02
New Economics Papers: this item is included in nep-rmg and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1002.2487

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