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arXiv · 1807.01186

Optimal investment and consumption with forward preferences and uncertain parameters

Wing Fung Chong·Gechun Liang
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Abstract

This paper studies robust forward investment and consumption preferences within a zero-volatility context. Different from previous works, we consider an incomplete financial market model due to general investment portfolio constraints. We provide a new PDE characterization and a novel semi-explicit saddle-point construction of forward preferences and optimal strategies. We further present a more detailed construction of forward preferences and optimal strategies under constant relative risk aversion (CRRA). Key findings emphasize the necessity of a specific relationship between the initial investment preference and the forward consumption preference, indicating a long-term decreasing trend in forward consumption preference behavior.

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Wing Fung Chong, Gechun Liang. 2018-07-03. Optimal investment and consumption with forward preferences and uncertain parameters. https://arxiv.org/abs/1807.01186

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