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The investor problem based on the HJM model

Szymon Peszat and Dariusz Zawisza

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Abstract: We consider a consumption-investment problem (both on finite and infinite time horizon) in which the investor has an access to the bond market. In our approach prices of bonds with different maturities are described by the general HJM factor model. We assume that the bond market consists of entire family of rolling bonds and the investment strategy is a general signed measure distributed on all real numbers representing time to maturity specifications for different rolling bonds. In particular, we can consider portfolio of coupon bonds. The investor's objective is to maximize time-additive utility of the consumption process. We solve the problem by means of the HJB equation for which we prove required regularity of its solution and all required estimates to ensure applicability of the verification theorem. Explicit calculations for affine models are presented.

Date: 2020-10, Revised 2021-12
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Published in Annales Polonici Mathematici 127 (2021), 241-269

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