Abstract
We consider the continuous time consumption-investment problem originally formalized and solved by Merton in case of constant relative risk aversion. We present a complete solution for the case where relative risk aversion with respect to consumption varies with time, having in mind an investor with age-dependent risk aversion. This provides a new motivation for life-cycle investment rules. We study the optimal consumption and investment rules, in particular in the case where the relative risk aversion with respect to consumption is increasing with age.
| Original language | English |
|---|---|
| Journal | Journal of Economic Dynamics and Control |
| Volume | 35 |
| Issue number | 5 |
| Pages (from-to) | 659-667 |
| ISSN | 0165-1889 |
| Publication status | Published - May 2011 |