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Optimal Consumption and Investment with Bankruptcy

  • Book
  • © 1997

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Authors:
  1. Suresh P. Sethi
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Table of contents (16 chapters)

  1. Front Matter

    Pages i-xx
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  2. Introduction

    1. Front Matter

      Pages 1-1
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    2. Consumption/Investment Problems

      • Suresh P. Sethi
      Pages 3-18

  3. Models with Constant Market Parameters and Nonnegative Consumption

    1. Front Matter

      Pages 19-19
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    2. Explicit Solution of a General Consumption/ Investment Problem

      • Ioannis Karatzas, John P. Lehoczky, Suresh P. Sethi, Steven E. Shreve
      Pages 21-56

    3. A Note on Merton’s “Optimum Consumption and Portfolio Rules in a Continuous-Time Model”

      • Suresh P. Sethi, Michael Taksar
      Pages 57-65

    4. Infinite-Horizon Investment Consumption Model with a Nonterminal Bankruptcy

      • M. I. Taksar
      Pages 67-84

    5. Risk-Aversion Behavior in Consumption/Investment Problems

      • E. L. Presman
      Pages 85-116

  5. Models with More General Markets and Positive Subsistence Consumption

    1. Front Matter

      Pages 245-245
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    2. Consumption-Investment Problem with Subsistence Consumption, Bankruptcy, and Random Market Coefficients

      • A. Cadenillas
      Pages 247-280

  6. Models with Constant Market Parameters, Positive Subsistence Consumption and Borrowing/Shortselling Constraints

    1. Front Matter

      Pages 281-281
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    2. Optimal Dynamic Consumption and Portfolio Planning in a Welfare State

      • S. P. Sethi, M. J. Gordon, B. Ingham
      Pages 283-302

    3. Optimal Consumption and Investment Policies Allowing for Consumption Constraints, Bankruptcy, and Welfare

      • J. P. Lehoczky, S. E. Shreve
      Pages 303-378
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Keywords

About this book

This book presents papers on continuous-time consumption­ investment models by Suresh Sethi and various co-authors. Sir Isaac Newton said that he saw so far because he stood on the shoulders of gi­ ants. Giants upon whose shoulders Professor Sethi and colleagues stand are Robert Merton, particularly Merton's (1969, 1971, 1973) seminal papers, and Paul Samuelson, particularly Samuelson (1969). Karatzas, Lehoczky, Sethi and Shreve (1986), henceforth KLSS, re­ produced here as Chapter 2, reexamine the model proposed by Mer­ ton. KLSS use methods of modern mathematical analysis, taking care to prove the existence of integrals, check the existence and (where appro­ priate) the uniqueness of solutions to equations, etc. KLSS find that un­ der some conditions Merton's solution is correct; under others, it is not. In particular, Merton's solution for aHARA utility-of-consumption is correct for some parameter values and not for others. The problem with Merton's solution is that it sometimes violates the constraints against negative wealth and negative consumption stated in Merton (1969) and presumably applicable in Merton (1971 and 1973). This not only affects the solution at the zero-wealth, zero-consumption boundaries, but else­ where as well. Problems with Merton's solution are analyzed in Sethi and Taksar (1992), reproduced here as Chapter 3.

Bibliographic Information

  • Book Title: Optimal Consumption and Investment with Bankruptcy

  • Authors: Suresh P. Sethi

  • DOI: https://doi.org/10.1007/978-1-4615-6257-3

  • Publisher: Springer New York, NY

  • eBook Packages: Springer Book Archive

  • Copyright Information: Springer Science+Business Media New York 1997

  • Hardcover ISBN: 978-0-7923-9755-7Published: 30 November 1996

  • Softcover ISBN: 978-1-4613-7871-6Published: 10 October 2012

  • eBook ISBN: 978-1-4615-6257-3Published: 06 December 2012

  • Edition Number: 1

  • Number of Pages: XX, 428

  • Topics: Business and Management, general, Finance, general, Operations Research/Decision Theory

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