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Optimal lifetime consumption and investment under a drawdown constraint

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Date
2008
Dewey
Probabilités et mathématiques appliquées
Sujet
Verification; Duality; Drawdown constraint; Portfolio allocation
Journal issue
Finance and Stochastics
Volume
12
Number
3
Publication date
07-2008
Article pages
299-330
Publisher
Springer
DOI
http://dx.doi.org/10.1007/s00780-008-0066-8
URI
https://basepub.dauphine.fr/handle/123456789/707
Collections
  • CEREMADE : Publications
Metadata
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Author
Touzi, Nizar
Elie, Romuald
Type
Article accepté pour publication ou publié
Abstract (EN)
We consider the infinite-horizon optimal consumption-investment problem under a drawdown constraint, i.e., when the wealth process never falls below a fixed fraction of its running maximum. We assume that the risky asset is driven by the with constant coefficients. For a general class of utility functions, we provide the value function in explicit form and derive closed-form expressions for the optimal consumption and investment strategy.

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