Merton's Portfolio Problem is a well known problem in continuous-time finance. An investor must choose how much to consume and must allocate his wealth between stocks and a risk-free asset so as to maximize expected utility. The problem was formulated and solved by Robert C. Merton in 1969 both for finite lifetimes and for the infinite case. Research has continued to extend and generalize the model to include factors like transaction costs and bankruptcy.
Read more about Merton's Portfolio Problem: Problem Statement, Solution, Extensions
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