Abstract
In this paper, we study a dynamic portfolio-consumption optimization problem when the market price of risk is driven by linear Gaussian processes. We show sufficient conditions to verify that an explicit solution derived from the Hamilton-Jacobi-Bellman equation is in fact an optimal solution to the portfolio selection problem.
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We are grateful to Chiaki Hara, Naoto Kunitomo, Alex Novikov, Jun Sekine, Akihiko Takahashi, and all seminar participants at ETH in Zurich, the 2005 Spring meeting of the Japan Economic Association, and the 13th annual meeting of Nippon Finance Association for their helpful comments. We are also grateful to the anonymous referees for their careful reading of the manuscript and valuable comments and suggestions.
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Honda, T., Kamimura, S. On the Verification Theorem of Dynamic Portfolio-Consumption Problems with Stochastic Market Price of Risk. Asia-Pac Financ Markets 18, 151–166 (2011). https://doi.org/10.1007/s10690-010-9128-y
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DOI: https://doi.org/10.1007/s10690-010-9128-y