{"title":"Optimal asset allocation with restrictions on liquidity","authors":"N. Medhin, C. Xu","doi":"10.1080/07362994.2021.1959349","DOIUrl":null,"url":null,"abstract":"Abstract An optimal asset allocation problem involving restrictions on liquidity is studied in this article. The portfolio consists of liquid and illiquid asset. The portfolio is only allowed to rebalance at particular times. An investor tries to maximize the total utility of a hyperbolic absolute risk aversion function depending on the consumption, which is sourced only from the liquid asset. The optimal policies of the consumption, investment, and allocation are derived. A numerical approximation scheme is developed to show the optimal allocation policy in our model is path-dependent. Paths of the value function and other optimal controls are illustrated to validate our results.","PeriodicalId":49474,"journal":{"name":"Stochastic Analysis and Applications","volume":"40 1","pages":"776 - 797"},"PeriodicalIF":0.8000,"publicationDate":"2021-08-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Stochastic Analysis and Applications","FirstCategoryId":"100","ListUrlMain":"https://doi.org/10.1080/07362994.2021.1959349","RegionNum":4,"RegionCategory":"数学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"MATHEMATICS, APPLIED","Score":null,"Total":0}
引用次数: 0
Abstract
Abstract An optimal asset allocation problem involving restrictions on liquidity is studied in this article. The portfolio consists of liquid and illiquid asset. The portfolio is only allowed to rebalance at particular times. An investor tries to maximize the total utility of a hyperbolic absolute risk aversion function depending on the consumption, which is sourced only from the liquid asset. The optimal policies of the consumption, investment, and allocation are derived. A numerical approximation scheme is developed to show the optimal allocation policy in our model is path-dependent. Paths of the value function and other optimal controls are illustrated to validate our results.
期刊介绍：
Stochastic Analysis and Applications presents the latest innovations in the field of stochastic theory and its practical applications, as well as the full range of related approaches to analyzing systems under random excitation. In addition, it is the only publication that offers the broad, detailed coverage necessary for the interfield and intrafield fertilization of new concepts and ideas, providing the scientific community with a unique and highly useful service.
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