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The Tradeoff between Consumption and Investment in Incomplete Financial Markets

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Abstract

In this paper we are concerned with the tradeoff between long term growth of the expected utility of wealth and consumption. The goal is to find a consumption policy for which the optimal rate of capital growth is zero, i.e. a policy for which balance between consumption and investment is reached. The asymptotic limit of this investment problem when the HARA parameter γ → -∝ is also studied.

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Authors and Affiliations

  1. Division of Applied Mathematics, Brown University, Providence, RI 02912, USA

    Wendell H. Fleming

  2. Centro de Investigacion en Matematicas, Apartado Postal 402, Guanajuato, Gto. 36000, Mexico

    Daniel Hernández-Hernández

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  1. Wendell H. Fleming
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  2. Daniel Hernández-Hernández
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Corresponding authors

Correspondence to Wendell H. Fleming or Daniel Hernández-Hernández.

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Fleming, W., Hernández-Hernández, D. The Tradeoff between Consumption and Investment in Incomplete Financial Markets. Appl Math Optim 52, 219–235 (2005). https://doi.org/10.1007/s00245-005-0826-1

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  • DOI: https://doi.org/10.1007/s00245-005-0826-1

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