In this paper, we investigate the parallelization efficiency of the discrete time dynamic programming approach to solve dynamic portfolio choice models over the life cycle. This approach suffers from the so-called curse of dimensionality. That is, the time-to-result grows exponentially in the...

This paper provides a novel five-component decomposition of optimal dynamic portfolio choice. It reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. The decomposition leads to implementation via either closed-form solutions or Monte Carlo simulations. With...

The solution to dynamic portfolio choice models can be formulated in terms of a value function by the Bellman principle of optimality, which reduces the multi-period optimal policy choice problem to a sequence of one-period maximization problems. For two adjacent periods, economists compute the...

We analyze portfolio policies for investors who invest optimally for given investment horizons with respect to Conditional Value-at-Risk constraints. We account for non-normally distributed, skewed, and leptokurtic asset return distribution due to regime shifts. The focus is on standard CRRA...

This paper solves the dynamic asset allocation problem under stock return predictability based on the dividend price ratio with regime shifts and parameter uncertainty in a fully Bayesian framework. Intertemporal hedging demands are simultaneously induced by predictability, regime shifts,...

Frazzini and Pedersen (2014) document that a betting against beta strategy that takes long positions in low-beta stocks and short positions in high-beta stocks generates a large abnormal return of 6.6% per year and they attribute this phenomenon to funding liquidity risk. We demonstrate that...

We quantify disagreement about the economy with ex-ante measures of divergence of opinion among economic forecasters and investigate if economic disagreement has a significant impact on the cross-sectional pricing of individual stocks. We find a significant disagreement premium of 7.2% per...

Using properties of the cdf of a random variable defined as a saddle-type point of a real valued continuous stochastic process, we derive first-order asymptotic properties of tests for stochastic spanning w.r.t. a stochastic dominance relation. First, we define the concept of Markowitz...

We develop and implement methods for determining whether introducing new securities or relaxing investment constraints improves the investment opportunity set for prospect investors. We formulate a new testing procedure for prospect spanning for two nested portfolio sets based on subsampling and...