We formulate a model of preferences with non-addictive habits, in which consumption is allowed to fall below the standard of living. In this context we resolve the consumption-portfolio choice problem taking account of the non-negativity constraint on consumption. We provide a constructive proof of existence of an optimal policy. In particular, we show that the consumption constraint binds up to an endogenously determined stopping time \tau* \in [0, T], after which it remains slack until T. A decomposition of constrained consump- tion involving an Asian average-strike capped call-option is demonstrated.
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