Martin Herdegen - Optimal Investment and Consumption with Epstein-Zin Stochastic Differential Utility and Proportional Transaction Costs
| Dates: | 8 March 2023 |
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| Times: | 15:00 - 16:00 |
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| What is it: | Seminar |
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| Organiser: | Department of Mathematics |
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Martin Herdegen (University of Warwick) will speak in the Probability seminar. (in-person)
We study the optimal investment-consumption problem for an agent whose preferences are governed by Epstein-Zin stochastic differential utility and who invests in a constant-parameter Black-Scholes-Merton market. We assume that purchases and sales of the risky asset are subject to proportional transaction costs. We fully characterise all parameter combinations for which the problem is well posed (which may depend on the level of transaction costs) and provide a full verification argument under no additional technical assumptions and using primary methods only. Even in the special case of the additive power utility, our arguments are significantly simpler and more elegant than the results in the extant literature. A novel key idea is to parametrise consumption in terms of the shadow fraction of wealth. The talk is based on joint work with David Hobson and Alex Tse.
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Maurice Priestley Room G.108
Alan Turing Building
Manchester
