We apply perturbation theory to solve the optimal control problem of an investor with time-additive power utility over intermediate consumption and final wealth. Under general conditions we show existence of a power series representation for the prevailing optimal consumption and investment...

We apply perturbation methods to solve in closed form a class of robust control problems, implied by Anderson, Hansen and Sargent setting of a preference for robustness. In the constant investment opportunity set case, we obtain closed form power series solutions for the arising robust Bellman...

We solve analytically the Merton's problem of an investor with time-additive power utility. For general state dynamics, we prove existence of two power series representations of the relevant optimal policies and value functions, which hold for all admissible risk aversion parameters. We...

Control problems with Recursive Multiple-Priors Utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with Locally-Constrained-Entropy RMPU (LCE-RMPU) that is tractable even in...

This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor’s expected life-time utility, and analyze his hedging demands for intertemporal changes...

This paper shows that in financial markets with endogenous asset supply and demand, both rational and noise traders do coexist in the long run. The finding implies that financial markets are neither informationally nor allocationally efficient. While rational traders have a consistently higher...

Theories of investment suggest that the option value of waiting to invest is significant in many branches of economics, where investment is irreversible. The existing literature has generally failed to account for the general equilibrium feedback effects of lumpy investments on optimal...

We study the equilibrium pricing sects of a sentiment for pessimism. Pessimism has the form of Knightian model uncertainty aversion for a neighborhood of indistinguishable model specifications that are constrained in their relative entropy from a given reft ence model. We fully characterise the...

We consider a dynamic general equilibrium model with incomplete markets in which we derive conditions for separating the savings decision from the asset allocation decision. It is shown that with logarithmic utility functions this separation holds for any heterogeneity of discount factors while...

This paper extends Merton’s continuous time (instantaneous) mean-varianceanalysis and the mutual fund separation theory. Given the existence of a Marko-vian state price density process, the optimal portfolios from concave utility max-imization are instantaneously mean-variance efficient...