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Consumption adjustment with mean-reverting risk premia: A singular stochastic control approach

Ha, Gugyum et al.
arXiv (All) · Papers
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60g40mathematical-financeoptimization-and-control
We study a two-sided singular stochastic control problem in which changes in consumption carry utility costs and the risk premium follows the mean-reverting Kim-Omberg model. Optimal consumption is reflected between two moving barriers given by thresholds that depend on the current risk premium. The
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