An elementary approach to the Merton problem

Martin Herdegen, David Hobson and Joseph Jerome

Papers from arXiv.org

Abstract: In this article we consider the infinite-horizon Merton investment-consumption problem in a constant-parameter Black - Scholes - Merton market for an agent with constant relative risk aversion R. The classical primal approach is to write down a candidate value function and to use a verification argument to prove that this is the solution to the problem. However, features of the problem take it outside the standard settings of stochastic control, and the existing primal verification proofs rely on parameter restrictions (especially, but not only, R

Date: 2020-06, Revised 2021-03
New Economics Papers: this item is included in nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2006.05260

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