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Optimal Consumption and Investment Policies with Bankruptcy Modelled by a Diffusion with Delayed Reflection

10 Pages Posted: 11 Jan 2010 Last revised: 14 Jan 2010

See all articles by Suresh Sethi

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Michael I. Taksar

University of Missouri at Columbia - Department of Mathematics (Deceased) ; State University of New York (SUNY), Stony Brook, College of Engineering and Applied Sciences, Department of Applied Mathematics and Statistics (Deceased)

Date Written: September 1, 1986

Abstract

The paper deals with the optimal behavior of an individual whose aim is to maximize total expected discunted utility of consumption subject to a nonterminal bankruptcy. This means that upon going bankrupt, the individual may recover from it after a temporary but random sojourn in bankruptcy.This type of bankruptcy is modeled by a continuous diffusion process with a delayed reflection.

Keywords: Consumption and Investment problem, Portfolio and Consumption problem, bankruptcy, stochastic optimal control, nonterminal bankruptcy, delayed reflection, dynamic programming

JEL Classification: C61, G11, G33

Suggested Citation

Sethi, Suresh and Taksar, Michael I., Optimal Consumption and Investment Policies with Bankruptcy Modelled by a Diffusion with Delayed Reflection (September 1, 1986). Available at SSRN: https://ssrn.com/abstract=1534226 or http://dx.doi.org/10.2139/ssrn.1534226

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Michael I. Taksar

University of Missouri at Columbia - Department of Mathematics (Deceased)

State University of New York (SUNY), Stony Brook, College of Engineering and Applied Sciences, Department of Applied Mathematics and Statistics (Deceased)

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