COOKIES: By using this website you agree that we can place Google Analytics Cookies on your device for performance monitoring. |

University of Cambridge > Talks.cam > Statistical Laboratory Graduate Seminars > The Merton Problem with a drawdown constraint on consumption

## The Merton Problem with a drawdown constraint on consumptionAdd to your list(s) Download to your calendar using vCal - Arun Thillaisundaram (University of Cambridge)
- Monday 21 May 2012, 13:30-14:30
- CMS, MR14.
If you have a question about this talk, please contact Elena Yudovina. The Merton problem – a question about optimal portfolio selection and consumption in continuous time – is indeed ubiquitous throughout the mathematical finance literature. Since Merton’s seminal paper in 1971, many variants of the original problem have been put forward and extensively studied. The variant we consider here is the Merton problem with a drawdown constraint on consumption. That is, the consumption can never fall below a fixed proportion of the running maximum of past consumption. In terms of economic motivation, this constraint represents a type of habit formation where once an investor has reached a certain standard of living, he is reluctant to let his standard of living fall too far below that level. To be precise, we consider an agent who can invest in a risk-free asset and a risky stock modelled by geometric Brownian motion. The agent seeks to maximise the expected infinite horizon utility of consumption by finding the optimal portfolio selection and consumption strategies – subject to the drawdown constraint on consumption. We consider power utility functions and use techniques from stochastic optimal control to identify a candidate solution. Finally, we discuss how to verify our conjectured solution. This talk is part of the Statistical Laboratory Graduate Seminars series. ## This talk is included in these lists:- All CMS events
- All Talks (aka the CURE list)
- CMS Events
- CMS, MR14
- DPMMS Lists
- DPMMS info aggregator
- DPMMS lists
- Hanchen DaDaDash
- Interested Talks
- School of Physical Sciences
- Statistical Laboratory Graduate Seminars
- Statistical Laboratory info aggregator
- bld31
Note that ex-directory lists are not shown. |
## Other listsFaculty of Music Colloquia Caius Medsoc Talks: "A Timeline of Medicine" Cambridge Society for Economic Pluralism## Other talksThe power of parenting support Modeling and understanding of Quaternary climate cycles Cambridge - Corporate Finance Theory Symposium September 2018 - Day 2 Acceleration of tropical cyclogenesis by self-aggregation feedbacks Rather more than Thirty-Nine Steps: the life of John Buchan An investigation into hepatocyte expression and prognostic significance of senescence marker p21 in canine chronic hepatitis |