A0379
Title: Stochastic volatility asymptotics for optimal subsistence consumption and Investment with bankruptcy
Authors: Kexin Chen - The Chinese University of Hong Kong (Hong Kong) [presenting]
Hoi Ying Wong - The Chinese University of Hong Kong (Hong Kong)
Mei Choi Chiu - The Education University of Hong Kong (Hong Kong)
Yong Hyun Shin - Sookmyung Women's University (Korea, South)
Abstract: Subsistence consumption and investment problems with bankruptcy are classic constrained stochastic optimal control problem in financial economic, where the consumption rate should be greater than a positive number and the investor faces a bankruptcy payment. We derive novel asymptotic solution to this problem under the fast mean-reverting stochastic volatility model. We rigorously prove that the zeroth-order approximation for the optimal pair of consumption and investment strategies leads to the first-order accuracy of the objective function. In addition, this zeroth-order sub-optimal consumption-investment pair is asymptotically optimal in a class of admissible trading strategy pairs.
