Laboratoire de Mathématiques Raphaël Salem

UMR 6085 CNRS - Université de Rouen Normandie

This presentation studies the consumption/investment problem for the spread financial market defined by the Ornstein–Uhlenbeck (OU) process. Recently, the OU process has been used as a proper financial model to reflect underlying prices of assets.
In this presentation, we study the optimal consumption/investment strategy for the power utility functions for small time interval, that 0 < t < T < T0. Main theorems have been stated and the existence and uniqueness of the solution has been proven. Numeric approximation for the solution of the HJB equation has been studied and the convergence rate has been established. In this case, the convergence rate for the numerical scheme is super geometrical, i.e., more rapid than any geometrical ones. A special verification theorem for this case has been shown. Moreover, we have studied the Hamilton–Jacobi–Bellman (HJB) equation through the Feynman–Kac (FK) method. The existence and uniqueness theorem for the classical solution for the HJB equation has been shown.
We extended our approach for any time interval where the power utility coefficient γ should be less than 1/4.
In addition, we consider in this presentation, the optimal consumption/investment problem for logarithmic utility functions for multivariate OU process in the base of the stochastic dynamical programming method. As well it has been shown a special verification theorem for this case. It has been demonstrated the existence and uniqueness theorem for the classical solution for the HJB equation in explicit form. As a consequence the optimal financial strategies were constructed. Some examples have been stated for a scalar case and for a multivariate case with diagonal volatility.