Lifetime consumption-portfolio choice under trading constraints, recursive preferences, and nontradeable income
We analyze the lifetime consumption-portfolio problem in a competitive securities market with continuous price dynamics, possibly nontradeable income, and convex trading constraints. We define a class of "translation-invariant" recursive preferences, which includes additive exponential utility, but also nonadditive recursive and multiple-prior formulations, and allows for first and second-order source-dependent risk aversion. For this class, we show that the solution reduces to a single constrained backward stochastic differential equation, which for an interesting class of incomplete-market problems simplifies to a system of ordinary differential equations of the Riccati type.
Year of publication: |
2005
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Authors: | Schroder, Mark ; Skiadas, Costis |
Published in: |
Stochastic Processes and their Applications. - Elsevier, ISSN 0304-4149. - Vol. 115.2005, 1, p. 1-30
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Publisher: |
Elsevier |
Keywords: | Finance Optimal portfolios Recursive utility BSDE FBSDE |
Saved in:
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