Journal
MATHEMATICAL SOCIAL SCIENCES
Volume 71, Issue -, Pages 142-150Publisher
ELSEVIER
DOI: 10.1016/j.mathsocsci.2014.07.001
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Funding
- NSERC [371653-09, 88051]
- MITACS [5-26761, 30354]
- Natural Science Foundation of China [10901086]
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This paper considers the problem of consumption and investment in a financial market within a continuous time stochastic economy. The investor exhibits a change in the discount rate. The investment opportunities are a stock and a riskless account. The market coefficients and discount factor switch according to a finite state Markov chain. The change in the discount rate leads to time inconsistencies of the investor's decisions. The randomness in our model is driven by a Brownian motion and a Markov chain. Following Ekeland and Pirvu (2008) we introduce and characterize the subgame perfect strategies. Numerical experiments show the effect of time preference on subgame perfect strategies and the pre-commitment strategies. (C) 2014 Elsevier B.V. All rights reserved.
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