Merton problem in an infinite horizon and a discrete time with frictions

Senda Ounaies (), Jean-Marc Bonnisseau, Souhail Chebbi () and Mete Soner ()
Additional contact information
Senda Ounaies: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Souhail Chebbi: KSU - King Saud University [Riyadh]
Mete Soner: D-MATH - Department of Mathematics [ETH Zurich] - ETH Zürich - Eidgenössische Technische Hochschule - Swiss Federal Institute of Technology [Zürich]

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Abstract: We investigate the problem of optimal investment and consumption of Merton in the case of discrete markets in an infinite horizon. We suppose that there is frictions in the markets due to loss in trading. These frictions are modeled through nonlinear penalty functions and the classical transaction cost and liquidity models are included in this formulation. In this context, the solvency region is defined taking into account this penalty function and every investigator have to maximize his utility, that is derived from consumption, in this region. We give the dynamic programming of the model and we prove the existence and uniqueness of the value function.

Keywords: Merton problem; discrete market; infinite horizon; market frictions; after liquidation value; dynamic programming; value function. (search for similar items in EconPapers)
Date: 2016-10
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Citations: View citations in EconPapers (2)

Published in Journal of Industrial and Management Optimization, 2016, 12 (4), pp.1323-1331. ⟨10.3934/jimo.2016.12.1323⟩

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Related works:
Working Paper: Merton problem in an infinite horizon and a discrete time with frictions (2016)
Working Paper: Merton problem in an infinite horizon and a discrete time with frictions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01395604

DOI: 10.3934/jimo.2016.12.1323

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