J. S. Duesenberry's (1949) ratcheting consumption demand is derived as a feature of the optimal dynamic consumption and investment policy given extreme habit formation that prevents consumption from falling over time. Preferences are in effect non-time-separable, extended-real-valued von Neumann-Morgenstern preferences. Consumption increases each time wealth reaches a new maximum. Risky investment is proportional to the excess of wealth over the perpetuity value of current consumption. Extensions constrain the net rate of decrease in consumption with a constant other than zero, add more consumption goods, and constrain on the maximal holding of the risky asset as a proportion of wealth.

Reload options, call options granting new options on exercise, are popularly used in compensation. Although the compound option feature may seem complicated, there is a distribution-free dominant policy of exercising reload options whenever they are in the money. The optimal policy implies general formulas for numerical valuation. Simpler formulas for valuation and hedging follow from Black–Scholes assumptions with or without continuous dividends. Time vesting affects the optimal policy, but numerical results indicate that it is nearly optimal to exercise in the money whenever feasible. The results suggest that reload options produce similar incentives as employee stock options and share grants.