Viscosity properties with singularities in a state-constrained expected utility maximization problem

Abstract

We consider the value function originating from an expected utility maximization problem with finite fuel constraint and show its close relation to a nonlinear parabolic degenerated Hamilton-Jacobi-Bellman (HJB) equation with singularity. On one hand, we give a so-called verification argument based on the dynamic programming principle, which allows us to derive conditions under which a classical solution of the HJB equation coincides with our value function (provided that it is smooth enough). On the other hand, we establish a comparison principle, which allows us to characterize our value function as the unique viscosity solution of the HJB equation.

arXiv comment23 pages, supported by Deutsche Forschungsgemeinschaft through Grant SCHI 500/3-1