The Monge-Kantorovich mass-transportation problem has been shown to be fundamental for various basic problems in analysis and geometry in recent years. Shen and Zheng (2010) proposed a probability method to transform the celebrated Monge-Kantorovich
problem in a bounded region of the Euclidean plane into a Dirichlet boundary problem associated to a nonlinear elliptic equation. Their results are original and sound, however, their arguments leading to the main results are skipped and difficult to follow. In the present paper, we adopt a different approach and give a short and easy-followed detailed proof for their main results.
A continuous-time consumption-investment model with constraint is considered for a small investor whose decisions are the consumption rate and the allocation of wealth to a risk-free and a risky asset with logarithmic Brownian motion fluctuations. Th
e consumption rate is subject to an upper bound constraint which linearly depends on the investors wealth and bankruptcy is prohibited. The investors objective is to maximize total expected discounted utility of consumption over an infinite trading horizon. It is shown that the value function is (second order) smooth everywhere but a unique possibility of (known) exception point and the optimal consumption-investment strategy is provided in a closed feedback form of wealth, which in contrast to the existing work does not involve the value function. According to this model, an investor should take the same optimal investment strategy as in Mertons model regardless his financial situation. By contrast, the optimal consumption strategy does depend on the investors financial situation: he should use a similar consumption strategy as in Mertons model when he is in a bad situation, and consume as much as possible when he is in a good situation.
