A CONSUMPTION-INVESTMENT PROBLEM MODELLED AS A DISCOUNTED MARKOV DECISION PROCESS

In this paper a problem of consumption and investment is presented as a model of a discounted Markov decision process with discrete-time. In this problem, it is assumed that the wealth is affected by a production function. This assumption gives the investor a chance to increase his wealth before the investment. For the solution of the problem there is established a suitable version of the Euler Equation (EE) which characterizes its optimal policy completely, that is, there are provided conditions which guarantee that a policy is optimal for the problem if and only if it satisfies the EE. The problem is exemplified in two particular cases: for a logarithmic utility and for a Cobb-Douglas utility. In both cases explicit formulas for the optimal policy and the optimal value function are supplied.