Talk1: Optimal Consumption and Portfolio Selection in the Presence of a Luxury Good
We study optimal consumption and portfolio policies when there exist two categories
of goods, necessities and luxuries. We derive a closed form solution for optimal con-
sumption of each good and the portfolio. We show that the agent consumes mostly
necessities when her wealth level is low but luxuries when the wealth level is high
enough. We also show that her revealed relative risk aversion is close to the elasticity
of marginal utility of necessities when wealth is low, but it decreases and approaches
the elasticity of marginal utility of luxuries as wealth increases.
This is a joint work with Prof. Hyeng Keun Koo (Ajou Univ.), Dr. Jung Lim Koo
(Univ. of Texas, Austin), and Prof. Gyoocheol Shim (Ajou Univ.).
Talk2: Optimal Consumption/Investment and Retirement with Necessities and Luxuries
We study an optimal consumption of necessity and luxury, investment, and volun-
tary retirement choice model. The utility function in the objective function is given
by the weighted sum of a quadratic utility function and a HARA utility function. We
use the martingale method to derive a closed form solution for optimal consumption
of necessity and luxury, and investment. We also give some numerical implications.
This is a joint work with Prof. Hyeng Keun Koo (Ajou Univ.), and Prof. Kum-Hwan
Roh (Hannam Univ.).