Abstract
We consider a model of optimal investment and consumption with both habit formation and partial observations in incomplete Itô processes market. The investor chooses his consumption under the addictive habits constraint while only observing the market stock prices but not the instantaneous rate of return. Applying the Kalman-Bucy filtering theorem and the Dynamic Programming arguments, we solve the associated Hamilton-Jacobi-Bellman (HJB) equation explicitly for the path dependent stochastic control problem in the case of power utilities. We provide the optimal investment and consumption policies in explicit feedback forms using rigorous verification arguments.
Connections
Explore this paper’s authors, topics and related work.
Building this map preview
BZPEER is loading the nearby papers, people, topics and institutions for this page.
Reviews 0
Write a review
No reviews yet.
Discussion 0
Add a comment
No comments yet.