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<p>This paper is devoted to the study of the optimal investment and consumption strategy for an agent who has the addictive habit formation preference. The agent has the constant relative risk aversion (CRRA) preference for consumption and Symmetric Asymptotic Hyperbolic Absolute Risk Aversion (SAHARA) preference towards terminal wealth. Under the criterion of expected utility maximization, the analytical expressions for the optimal investment and consumption strategies are derived by the martingale method and Lagrange dual method. Finally, some sensitivity analyses are presented to illustrate the effects of important parameters on the optimal strategies.</p>

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Optimal investment and consumption with SAHARA utility and habit formation

  • 期刊论文

  • 发表日期：

    2025年1月23日

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  • Fenge Chen,
  • Xingchun Peng,
  • Weile Wang

摘要

This paper is devoted to the study of the optimal investment and consumption strategy for an agent who has the addictive habit formation preference. The agent has the constant relative risk aversion (CRRA) preference for consumption and Symmetric Asymptotic Hyperbolic Absolute Risk Aversion (SAHARA) preference towards terminal wealth. Under the criterion of expected utility maximization, the analytical expressions for the optimal investment and consumption strategies are derived by the martingale method and Lagrange dual method. Finally, some sensitivity analyses are presented to illustrate the effects of important parameters on the optimal strategies.