Verification Theorems for Models of Optimal Consumption and Investment with Retirement and Constrained Borrowing

@article{Dybvig2011VerificationTF,
  title={Verification Theorems for Models of Optimal Consumption and Investment with Retirement and Constrained Borrowing},
  author={Philip H. Dybvig and Hong Liu},
  journal={Math. Oper. Res.},
  year={2011},
  volume={36},
  pages={620-635}
}
Proving verification theorems can be tricky for models with both optimal stopping and state constraints. We pose and solve two alternative models of optimal consumption and investment with an optimal retirement date (optimal stopping) and various wealth constraints (state constraints). The solutions are parametric in closed form up to at most a constant. We prove the verification theorem for the main case with a nonnegative wealth constraint by combining the dynamic programming and Slater… CONTINUE READING

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