An optimal investment problem with randomly terminating income

Abstract— We investigate an optimal consumption and investment problem where we receive a certain fixed income stream that is terminated at a random time. It turns out that the optimal strategy and the value function for this problem differ considerably from the case where our income stream is certain to continue indefinitely. More specifically, the optimal consumption policy involves a function that is not analytic around the point that represents zero wealth.

• Type: Conference
• Year: 2009
• Where: CDC
• Authors: Michel H. Vellekoop, Mark Davis
• Keywords: CDC 2009, Certain fixed Income, Control Systems, Income Stream, Optimal Consumption