Abstract
This paper examines the continuous-time portfolio-consumption problem of an agent with a recursive utility in the presence of nonlinear constraints on the wealth.Using backward stochastic differential equations, we state a dynamic maximum principle which generalizes the characterization of optimal policies obtained by Duffie and Skiadas [J.Math Econ. 23, 107 –131 (1994)] in the case of a linear wealth. From this property, we derive a characterization of optimal wealth and utility processes as the unique solution of a forward-backward system. Existence of an optimal policy is also established via a penalization method.
Citation
N. El Karoui. S. Peng. M. C. Quenez. "A dynamic maximum principle for the optimization of recursive utilities under constraints." Ann. Appl. Probab. 11 (3) 664 - 693, August 2001. https://doi.org/10.1214/aoap/1015345345
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