Optimal Investment Consumption Choices under Mispricing and Habit Formation
Abstract
:1. Introduction
2. Model Formulation
2.1. The Financial Market
2.2. Consumption Habits and Wealth Process
2.3. Optimization Problem
3. Solution of the Optimization Problems
3.1. Optimal Consumption and Investment Strategies
3.2. Special Cases
3.2.1. No Mispricing
3.2.2. Delta-Neutral Arbitrage Strategy
4. Numerical Illustrations
4.1. The Effects on Consumption and Investment Strategies
4.2. Wealth-Equivalent Utility Loss
5. Conclusions and Future Work
Author Contributions
Funding
Data Availability Statement
Acknowledgments
Conflicts of Interest
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0.03 | 0.05 | 1.2 | 0.1 | 0.3 | 1 | 0.2 | 0.4 | 3 | 0.2 |
T | |||||||||
0.1 | 0.174 | 0.07 | 20 | 0.5 | 0.253 | 4 | 0.2 | 1 |
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Shi, A.; Sun, J.; Liu, B. Optimal Investment Consumption Choices under Mispricing and Habit Formation. Mathematics 2024, 12, 2248. https://doi.org/10.3390/math12142248
Shi A, Sun J, Liu B. Optimal Investment Consumption Choices under Mispricing and Habit Formation. Mathematics. 2024; 12(14):2248. https://doi.org/10.3390/math12142248
Chicago/Turabian StyleShi, Ailing, Jingyun Sun, and Botao Liu. 2024. "Optimal Investment Consumption Choices under Mispricing and Habit Formation" Mathematics 12, no. 14: 2248. https://doi.org/10.3390/math12142248
APA StyleShi, A., Sun, J., & Liu, B. (2024). Optimal Investment Consumption Choices under Mispricing and Habit Formation. Mathematics, 12(14), 2248. https://doi.org/10.3390/math12142248