We consider the ordinary differential equation x2 u''=axu'+bu-c \bigl(u'-1\bigr)2, \quad x\in(0,x0), with a ε ℝ, b ε ℝ, c>0 and the singular initial condition u(0)=0, which in financial economics describes optimal disposal of an asset in a market with liquidity effects. It is shown in the paper that if a+b<0 then no continuous solutions exist, whereas if a+b>0 then there are infinitely many continuous solutions with indistinguishable asymptotics near 0. Moreover, it is proved that in the latter case there is precisely one solution u corresponding to the choice x 0=∞ which is such that 0≤u(x)≤x for all x>0, and that this solution is strictly increasing and concave. © 2013 Springer Science+Business Media New York.
CITATION STYLE
Brunovský, P., Černý, A., & Winkler, M. (2013). A singular differential equation stemming from an optimal control problem in financial economics. Applied Mathematics and Optimization, 68(2), 255–274. https://doi.org/10.1007/s00245-013-9205-5
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