Date

Sep. 3, 2002 (Tue.) 16:00-

Place

Institute of Economic Research
Kyoto University [Access]

Title of Seminar

Optimal Portfolio/consumption rules with habit-formation

Lecturer

Professor Ioannis Karatzas

Department of Mathematics and Statistics, Columbia University

Abstract

We formulate a model of preferences with non-addictive habits, where consumption is required to be non-negative at all times, but is allowed to fall below a "standard of living" index that aggregates past consumption. In this context we study the consumption-portfolio choice problem taking account of the non-negativity constraint on consumption, and provide a constructive proof for the existence of an optimal policy on a finite time-horizon [0,T].
In particular, we show that the consumption constraint binds up to an endogenously determined stopping time, after which it remains slack until T.