Title :
Optimal consumption and portfolio control for jump-diffusion stock process with log-normal jumps
Author :
Hanson, E.B. ; Westman, J.J.
Author_Institution :
Lab. for Adv. Comput., Illinois Univ., Chicago, IL, USA
Abstract :
A computational solution is found for a optimal consumption and portfolio policy problem in which the underlying stock satisfies a geometric jump-diffusion in which both the diffusion and jump amplitude are log-normally distributed. The optimal objective is to maximize the expected, discounted utility of terminal wealth and the cumulative discounted utility of instantaneous consumption. The jump-diffusion allows for a more realistic distribution, skewed toward negative jumps and having leptokurtic behavior in which the tails are thicker so that the distribution is more slender around the peak than normal. Computational issues pertinent to jump-diffusion calculations are discussed.
Keywords :
optimisation; statistical analysis; stock markets; cumulative discounted utility; expected discounted utility maximization; geometric jump-diffusion; instantaneous consumption utility; jump-diffusion stock process; leptokurtic behavior; log-normal distribution; log-normal jumps; optimal consumption control; optimal portfolio control; terminal wealth utility; Electronic mail; Finance; Investments; Optimal control; Portfolios; Pricing; Probability distribution; Processor scheduling; Solid modeling; Uniform resource locators;
Conference_Titel :
American Control Conference, 2002. Proceedings of the 2002
Print_ISBN :
0-7803-7298-0
DOI :
10.1109/ACC.2002.1023246