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Liquidity and optimal consumption with random income
Halmstad University, School of Information Science, Computer and Electrical Engineering (IDE), Halmstad Embedded and Intelligent Systems Research (EIS), MPE-lab. (Financial Mathematics)
Halmstad University, School of Information Science, Computer and Electrical Engineering (IDE), Halmstad Embedded and Intelligent Systems Research (EIS), MPE-lab.
2011 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

In the first part of our work we focus on the model of the optimal consumption with a random income. We provide the three dimensional equation for this model, demonstrate the reduction to the two dimensional case and provide for two different utility functions the full point-symmetries' analysis of the equations. We also demonstrate that for the logarithmic utility there exists a unique and smooth viscosity solution the existence of which as far as we know was never demonstrated before.

In the second part of our work we develop the concept of the empirical liquidity measure. We provide the retrospective view of the works on this issue, discuss the proposed definitions and develop our own empirical measure based on the intuitive mathematical model and comprising several features of the definitions that existed before. Then we verify the measure provided on the real data from the market and demonstrate the advantages of the proposed value for measuring the illiquidity.

Place, publisher, year, edition, pages
2011.
Keywords [en]
Financial Mathematics, HJB equation, liquidity, optimal consumption, random income
National Category
Computational Mathematics Computational Mathematics Mathematical Analysis
Identifiers
URN: urn:nbn:se:hh:diva-16108Local ID: IDE1149OAI: oai:DiVA.org:hh-16108DiVA, id: diva2:438569
Subject / course
Financial Mathematics
Presentation
2011-05-27, Wigrforssalen, Kristian IV:s väg 3, Halmstad, 16:45 (English)
Uppsok
Physics, Chemistry, Mathematics
Supervisors
Examiners
Available from: 2011-09-03 Created: 2011-09-03 Last updated: 2011-09-06Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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