A greedy algorithm for habit formation under multiplicative utility

Snezhana Kirusheva and Thomas S. Salisbury

Papers from arXiv.org

Abstract: We consider the problem of optimizing lifetime consumption under a habit formation model, both with and without an exogenous pension. Unlike much of the existing literature, we apply a power utility to the ratio of consumption to habit, rather than to their difference. The martingale/duality method becomes intractable in this setting, so we develop a greedy version of this method that is solvable using Monte Carlo simulation. We investigate the behaviour of the greedy solution, and explore what parameter values make the greedy solution a good approximation to the optimal one.

Date: 2023-05
New Economics Papers: this item is included in nep-des and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2305.04748 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2305.04748

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().