OPTIMAL CONSUMPTION AND INVESTMENT FOR A LARGE INVESTOR: AN INTENSITY‐BASED CONTROL FRAMEWORK

We introduce a new stochastic control framework where in addition to controlling the local coefficients of a jump‐diffusion process, it is also possible to control the intensity of switching from one state of the environment to the other. Building upon this framework, we develop a large investor model for optimal consumption and investment that generalizes the regime‐switching approach of Bäuerle and Rieder (2004) .