In this note we show the following result of Dybvig (1995) is valid for a general von Neumann–Morgenstern utility function: for an agent who does not tolerate a decline in consumption, the optimal investment out of discretionary wealth (in excess of the perpetuity value of current consumption)...

We suggest the method of evaluation of illiquid assets on the market in the presence of proportional transaction costs by using two consumption/investment models. We study an investor's implicit evaluation of an illiquid asset whose trading incurs a proportional transaction cost. We show that...

Anderson (1976) was the first to give a non-standard construction of a Brownian motion. His approach was to use the binomial model in a discrete time with infinitesimal time steps. Pricing an option in a model similar to the Black-Scholes model with the nonstandard Brownian motion can be done by...

We examine the consumption and portfolio decisions of an agent with Friedman-Savage type period utility in continuous time. We find the Friedman-Savage consumer does not gamble, but will aggressively invest in risky activities for wealth levels that support a minimum subsistence level of...

Fund models are statistical descriptions of markets where all asset returns are spanned by the returns of a lower-dimensional collection of funds, modulo orthogonal noise. Equivalently, they may be characterised as models where the global growth-optimal portfolio only involves investment in the...