Degree of Borrowing Constraints and Optimal Consumption and Investment under a General Utility Function

- Journal title : Korean Management Science Review
- Volume 33, Issue 1, 2016, pp.77-87
- Publisher : The Korean Operations and Management Science Society
- DOI : 10.7737/KMSR.2016.33.1.077

Title & Authors

Degree of Borrowing Constraints and Optimal Consumption and Investment under a General Utility Function

Shim, Gyoocheol;

Shim, Gyoocheol;

Abstract

I study optimal consumption and investment choices of an infinitely-lived economic agent with a general time-separable von Neumann-Morgenstern utility under general borrowing constraints against future labor income. An explicit solution is provided by the dynamic programming method. It is shown that the optimal consumption and risky investment decrease as the borrowing constraints become stronger.

Keywords

Degree of Borrowing Constraints;Consumption;Investment;Labor Income;

Language

Korean

References

1.

김명석, "한국 주식 수익률에 대한 Extreme 분포의 적용 가능성에 관하여", 경영과학, 제24권, 제2호(2007), pp.115-126.

2.

박세영, 이현탁, 이유나, 장봉규, "경기주기와 베이지안 학습(Bayesian learning) 기법을 고려한 개인의 자산관리 연구", 한국경영과학회지, 제39권, 제2호(2014), pp.49-66.

3.

최재호, 정종빈, 김성문, "마코위츠 포트폴리오 선정 모형을 기반으로 한 투자 알고리즘 개발 및 성과평가 :미국 및 홍콩 주식시장을 중심으로", 경영과학, 제30권, 제1호(2013), pp.73-89.

4.

Choi, K.J., G. Shim, and Y.H. Shin, "Optimal Portfolio, Consumption-Leisure and Retirement Choice Problem with CES Utility," Mathematical Finance, Vol.18(2008), pp.445-472.

5.

Farhi, E. and S. Panageas, "Saving and Investing for Early Retirement :a Theoretical Analysis," J. Financial Econ., Vol.83, (2007), pp.87-121.

6.

Karatzas, I., J. Lehoczky, S. Sethi, and S. Shreve, "Explicit Solution of a General Consumption/Investment Problem," Math. Oper. Res., Vol.11, No.2(1986), pp.261-294.

7.

Lim, B.H. and Y.H. Shin, "Optimal Investment, Consumption and Retirement Decision with Disutility and Borrowing Constraints," Quantitative Finance, Vol.11(2011), pp.1581-1592.

8.

Markowitz, H., "Portfolio Selection," Journal of Finance, Vol.7(1952), pp.77-91.

9.

Merton, R.C., "Lifetime Portfolio Selection under Uncertainty :The Continuous-Time Case," Rev. Econom. Statist., Vol.51(1969), pp.247-257.