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Discrete Dynamics in Nature and Society
Volume 2016 (2016), Article ID 9606497, 17 pages
http://dx.doi.org/10.1155/2016/9606497
Research Article

Optimal Investment-Consumption Strategy under Inflation in a Markovian Regime-Switching Market

China Institute for Actuarial Science, Central University of Finance and Economics, Beijing 100081, China

Received 30 December 2015; Accepted 9 June 2016

Academic Editor: Silvia Romanelli

Copyright © 2016 Huiling Wu. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper studies an investment-consumption problem under inflation. The consumption price level, the prices of the available assets, and the coefficient of the power utility are assumed to be sensitive to the states of underlying economy modulated by a continuous-time Markovian chain. The definition of admissible strategies and the verification theory corresponding to this stochastic control problem are presented. The analytical expression of the optimal investment strategy is derived. The existence, boundedness, and feasibility of the optimal consumption are proven. Finally, we analyze in detail by mathematical and numerical analysis how the risk aversion, the correlation coefficient between the inflation and the stock price, the inflation parameters, and the coefficient of utility affect the optimal investment and consumption strategy.