Optimal entry and consumption under habit formation

Yue Yang, Xiang Yu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)


This paper studies a composite problem involving decision-making about the optimal entry time and dynamic consumption afterwards. In Stage 1, the investor has access to full market information subject to some information costs and needs to choose an optimal stopping time to initiate Stage 2; in Stage 2, the investor terminates the costly full information acquisition and starts dynamic investment and consumption under partial observation of free public stock prices. Habit formation preferences are employed, in which past consumption affects the investor's current decisions. Using the stochastic Perron method, the value function of the composite problem is proved to be the unique viscosity solution of some variational inequalities.

Original languageEnglish
Pages (from-to)433-459
Number of pages27
JournalAdvances in Applied Probability
Issue number2
Publication statusPublished - 10 Jun 2022


  • consumption habit formation
  • Optimal entry problem
  • stochastic Perron method
  • viscosity solution

ASJC Scopus subject areas

  • Statistics and Probability
  • Applied Mathematics


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