This paper relates recursive utility in continuous time to its discrete-time origins and provides a rigorous and intuitive alternative to a heuristic approach presented in [Duffie, Epstein 1992], who formally define recursive utility in continuous time via backward stochastic differential...

Existing studies of household stock trading using administrative data offer conflicting results: discount brokerage accounts exhibit excessive trading, while retirement accounts show inactivity. This paper uses population-wide data from PSID and SCF to examine the overall extent of household...

This paper analyzes the portfolio decision of an investor facing the threat of illiquidity. In a continuous-time setting, the efficiency loss due to illiquidity is addressed and quantified. We show that the efficiency loss for a logarithmic investor with 30 years until the investment horizon is...

In this paper, we consider the asset allocation problem of an investor allocating his funds between several corporate bonds and a money market account. In particular, we provide a realistic model of financial distress: Firstly, we model Chapter 7 and Chapter 11 bankruptcies as different possible...

In this paper, we analyze the impact of default risk on the portfolio decision of an investor wishing to invest in corporate bonds. Default risk is modeled via a reduced form approach and we allow for random recovery as well as joint default events. Depending on the structure of the model, we...

The aim of this paper is to highlight some of the problems occuring when one leaves the usual path of portfolio problems with Gaussian interest rates and bounded market price of risk. We solve several portfolio problems for different specifications of the short rate and the market price of risk....

In a continuous-time framework, the issue of how to delegate an investor's portfolio decision to a portfolio manager is studied. Firstly, we solve the first-best problem where the investor is able to force the manager to implement a certain strategy. For the second-best case, a specific...

Given an investor maximizing utility from terminal wealth with respect to a power utility function, we present a verification result for portfolio problems with stochastic volatility. Applying this result, we solve the portfolio problem for Heston's stochastic volatility model. We find that only...

Given an investor maximizing utility from terminal wealth with respect to a power utility function, we present a verification result for portfolio problems with stochastic volatility. Applying this result, we solve the portfolio problem for Heston's stochastic volatility model. We find that only...

In a continuous-time framework, the issue of how to delegate an investor's portfolio decision to a portfolio manager is studied. First, we solve the first-best problem. For the second-best case, a specific quadratic contract is introduced resolving the agency conflict completely in the sense...