Xiang Yu. Utility Maximization with Addictive Consumption Habit Formation in Incomplete Semimartingale Markets


Social Sciences / Economics / Financial

Submitted on: Apr 11, 2012, 06:49:42

Description: This paper studies the problem of continuous time expected utility maximization of consumption together with addictive habit formation in general incomplete semimartingale financial markets. Introducing an auxiliary state processes and a modified dual space, we embed our original problem into an auxiliary time-separable utility maximization problem with the shadow random endowment. We establish existence and uniqueness of the optimal solution using convex duality on the product space by defining the primal value function as depending on both the initial wealth and initial standard of living. We also provide market independent sufficient conditions on both stochastic discounting processes of the habit formation process and on the utility function for our original problem to be well posed and to modify the convex duality approach when the auxiliary dual process is not necessarily integrable.

The abstract of this article has been published in the "Intellectual Archive Bulletin" , April 2012, ISSN 1929-1329.

The Library of Congress (USA) reference page : http://lccn.loc.gov/2012210064.
The Library and Archives Canada reference page: collectionscanada.gc.ca/ourl/res.php?url_ver=Z39.88......

To read the article posted on Intellectual Archive web site please click the link below.

Xiang_Yu_Utility_Maximization_with_Addictive_Consumption.pdf



© 2011-2017 Shiny World Corp. All rights reserved. To reach us please send an e-mail to support@IntellectualArchive.com