Applied Mathematics and Optimization, Vol.71, No.2, 279-311, 2015
H-J-B Equations of Optimal Consumption-Investment and Verification Theorems
We consider a consumption-investment problem on infinite time horizon maximizing discounted expected HARA utility for a general incomplete market model. Based on dynamic programming approach we derive the relevant H-J-B equation and study the existence and uniqueness of the solution to the nonlinear partial differential equation. By using the smooth solution we construct the optimal consumption rate and portfolio strategy and then prove the verification theorems under certain general settings.
Keywords:Utility maximization;Risk-sensitive stochastic control;Factor models;H-J-B equation;Infinite time horizon