An Approximation Algorithm for Optimal Consumption/Investment Problems

20 Pages Posted: 3 Nov 2008

See all articles by Sanjiv Ranjan Das

Sanjiv Ranjan Das

Santa Clara University - Leavey School of Business

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

Date Written: October 2001

Abstract

This article develops a simple approach to solving continuous-time portfolio choice problems. Portfolio problems for which no closed-form solutions are available may be handled by this technique, which substitutes the numerical solution of partial differential equations with a non-linear numerical algorithm approximating the solution. This paper complements the wide literature in economics on the solution of dynamic problems in dicrete time. The algorithm is parismonious, and is illustrated by solving two examples, one, the standard Merton problem, and two, a jump-diffusion problem.

Suggested Citation

Das, Sanjiv Ranjan and Sundaram, Rangarajan K., An Approximation Algorithm for Optimal Consumption/Investment Problems (October 2001). NYU Working Paper No. FIN-01-034. Available at SSRN: https://ssrn.com/abstract=1294578

Sanjiv Ranjan Das (Contact Author)

Santa Clara University - Leavey School of Business ( email )

Department of Finance
316M Lucas Hall
Santa Clara, CA 95053
United States

HOME PAGE: http://algo.scu.edu/~sanjivdas/

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0308 (Phone)
212-995-4233 (Fax)

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