Optimal Investment and Consumption With Two Bonds and Transaction Costs
| ISSN: |
1467-9965
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| Source: |
Blackwell Publishing Journal Backfiles 1879-2005
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| Topics: |
Mathematics
Economics
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| Notes: |
An agent can invest in a high-yield bond and a low-yield bond, holding either long or short positions in either asset. Any movement of money between these two assets incurs a transaction cost proportional to the size of the transaction. the low-yield bond is liquid in the sense that wealth invested in this bond can be consumed directly without a transaction cost; wealth invested in the high-yield bond can be consumed only by first moving it into the low-yield bond. the problem of optimal consumption and investment on an infinite planning horizon is solved for a class of utility functions larger than the class of power functions.
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| Type of Medium: |
Electronic Resource
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| URL: |