Optimal consumption-investment with critical wealth level

We consider a consumption-investment problem in which the relevant economic conditions change, depending on whether the wealth exceeds a critical level or not. We propose a dynamic programming method to solve the problem by dividing the problem into subproblems split by wealth levels, and imposing a freeze condition at the boundaries. We then join the solutions of the subproblems so that the resulting value function is piecewise C-2. The methodology is illustrated through an application to a problem with nonnegative life insurance constraint. (C) 2016 Elsevier Inc. All rights reserved.