2025/03/24 by Yijie Huang, Kaixin Yan, Huang, Yijie +3
Decision Sciences · Economics, Econometrics and Finance · #Auction Theory and Applications #Economic theories and models #FOS: Mathematics #Optimization and Control (math.OC) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.2503.18443
openalex publication_date 2025/03/24 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper studies a type of consumption preference where some adjustment costs are incured whenever the past spending maximum and the past spending minimum records are updated. This preference can capture the adverse effects of the historical consumption high and low values on the agent's consumption performance, thereby matching with some empirically observed smooth consumption patterns. By employing the dual transform, the smooth-fit conditions and the super-contact conditions, we obtain the closed-form solution of the dual PDE problem, and can characterize the optimal investment and consumption controls in the piecewise feedback form. We provide the rigorous proof of the verification theorem and compensate the theoretical findings with some numerical examples and financial implications.