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  Quarterly of Applied Mathematics
Quarterly of Applied Mathematics
Online ISSN 1552-4485; Print ISSN 0033-569X

A stochastic control model of investment, production and consumption

Authors: Wendell H. Fleming and Tao Pang
Journal: Quart. Appl. Math. 63 (2005), 71-87
MSC (2000): Primary 60H30, 91B28, 93E20
Published electronically: December 17, 2004
MathSciNet review: 2126570
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Abstract | References | Similar Articles | Additional Information

Abstract: We consider a stochastic control model in which an economic unit has productive capital and also liabilities in the form of debt. The worth of capital changes over time through investment as well as through random Brownian fluctuations in the unit price of capital. Income from production is also subject to random Brownian fluctuations. The goal is to choose investment and consumption controls which maximize total expected discounted HARA utility of consumption. Optimal control policies are found using the method of dynamic programming. In case of logarithmic utility, these policies have explicit forms.

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Additional Information

Wendell H. Fleming
Affiliation: Division of Applied Mathematics, Brown University, Providence, RI 02912

Tao Pang
Affiliation: Department of Mathematics, NC State University, Raleigh, NC 27695

PII: S 0033-569X(04)00941-1
Received by editor(s): April 22, 2004
Published electronically: December 17, 2004
Article copyright: © Copyright 2004 Brown University

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