Abstract
In the paper “Optimum Consumption and Portfolio Rules in a continuous-Time Model,” by R. C. Merton (J. Econ. Theory 3 (1971), 373-413), solutions obtained in cases when marginal utility at zero consumption is finite are not feasible. While they do satisfy the Hamilton-Jacobi Bellman equations, they do not represent appropriate value functions because the boundary behavior near zero wealth is not satisfactorily dealt with. In this note, we specify the boundary behavior and characterize optimal solutions. Journal of Economic Literature Classification Numbers: 022, 213.
This research is supported in part by the SSHRC under Grant 410-83-0888 and the AFOSR under Grant 85-C-O007. Comments from John Lehoczky and Steve Shreve are gratefully acknowledged.
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References
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Sethi, S.P., Taksar, M. (1997). A Note on Merton’s “Optimum Consumption and Portfolio Rules in a Continuous-Time Model”. In: Optimal Consumption and Investment with Bankruptcy. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-6257-3_3
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DOI: https://doi.org/10.1007/978-1-4615-6257-3_3
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