Optimal consumption and investment under time-varying relative risk aversion

Mogens Steffensen ()
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Mogens Steffensen: Department of Mathematical Sciences - Universitetsparken 5

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Abstract: We consider the continuous time consumption-investment problem originally formalized and solved by Merton in case of constant relative risk aversion. We present a complete solution for the case where relative risk aversion with respect to consumption varies with time, having in mind an investor with age-dependent risk aversion. This provides a new motivation for life-cycle investment rules. We study the optimal consumption and investment rules, in particular in the case where the relative risk aversion with respect to consumption is increasing with age.

Keywords: G11; Merton's problem; Hamilton-Jacobi-Bellman equation; Marginal indirect utility; Life-cycle investment (search for similar items in EconPapers)
Date: 2011-03-03
Note: View the original document on HAL open archive server: https://hal.science/hal-00796302
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Citations: View citations in EconPapers (9)

Published in Journal of Economic Dynamics and Control, 2011, 35 (5), pp.659. ⟨10.1016/j.jedc.2010.12.007⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00796302

DOI: 10.1016/j.jedc.2010.12.007

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