STOCHASTIC PR0GRAMMING METHOD FOR MULTIPERIOD CONSUMPTION AND INVESTMENT PROBLEMS WITH TRANSACTIONS COSTS

Using the GARCH model to describe the risky asset's return process so thatits time-varying moments and conditional heteroskedasticity can be properly reflected,general multiperiod optimal investment and consumption problems with both fixed andproportional transactions costs are investigated in this paper. We model this kind ofdifficult problems as a dynamic stochastic optimization problem, which can cope withdifferent utility functions and any number of time periods. The procedure to solve theresulting complex nonlinear stochastic optimization problem is discussed in detail and abranch-decomposition algorithm is devised.

STOCHASTIC PROGRAMMING METHOD FOR MULTIPERIOD CONSUMPTION AND INVESTMENT PROBLEMS WITH TRANSACTIONS COSTS

Using the GARCH model to describe the risky asset's return process so that its time-varying moments and conditional heteroskedasticity can be properly reflected, general multiperiod optimal investment and consumption problems with both fixed and proportional transactions costs are investigated in this paper. We model this kind of difficult problems as a dynamic stochastic optimization problem, which can cope with different utility functions and any number of time periods. The procedure to solve the resulting complex nonlinear stochastic optimization problem is discussed in detail and a branch-decomposition algorithm is devised.