Seminar Event Detail

Financial/Actuarial Mathematics

Date:  Wednesday, March 16, 2016
Location:  1360 East Hall (4:00 PM to 5:00 PM)

Title:  Sensitivity of Optimal Consumption Streams

Abstract:   We study the sensitivity of optimal consumption streams with respect to perturbations
of the random endowment. At the leading order, the consumption adjustment does not
matter: any choice that matches the budget constraint simply shifts the original utility by
the marginal value of the perturbation. Nontrivial results obtain at the next-to-leading
order. Here, one first solves the problem for a deterministic perturbation, which leads
to a “prognosis measure”. The desired consumption adjustment for a general endowment
perturbation is in turn given by the conditional expectation of the latter, computed under
this measure and appropriately weighted with the conditional expectations of the remaining
risk-tolerance. As an interesting application, we consider the problem of optimal
consumption with small transaction costs.

The talk is based on joint work with Johannes Muhle-Karbe (University of Michigan).

Files: 3803_Herdegen_Michigan.pdf

Speaker:  Matin Herdegen
Institution:  ETH

Event Organizer:   Erhan Bayraktar


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