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 nexttoleading
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
risktolerance. As an interesting application, we consider the problem of optimal
consumption with small transaction costs.
The talk is based on joint work with Johannes MuhleKarbe (University of Michigan).
Files: 3803_Herdegen_Michigan.pdf
Speaker: Matin Herdegen
Institution: ETH
Event Organizer: Erhan Bayraktar erhan@umich.edu
