Optimal Consumption And Portfolio Choice With Borrowing Constraints Classic Reprint
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Author | : Jean-Luc Vila |
Publisher | : Forgotten Books |
Total Pages | : 46 |
Release | : 2018-01-04 |
Genre | : Mathematics |
ISBN | : 9780428331344 |
Excerpt from Optimal Consumption and Portfolio Choice With Borrowing Constraints The powerful theory of viscosity solutions is used in this paper. The value function is first characterized as the unique (constrained) viscosity solution of the Bellman equation. The characterization of the value function as a viscosity solution is imperative because the associated Bellman equation, which turns out to be fully nonlinear, might be degenerate (due to the constraints) About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Author | : Jean-Luc Vila |
Publisher | : |
Total Pages | : 36 |
Release | : 1994 |
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Author | : o F. Cocco |
Publisher | : |
Total Pages | : |
Release | : 2013 |
Genre | : |
ISBN | : |
This article solves a realistically calibrated life cycle model of consumption and portfolio choice with non-tradable labor income and borrowing constraints. Since labor income substitutes for riskless asset holdings, the optimal share invested in equities is roughly decreasing over life. We compute a measure of the importance of human capital for investment behavior. We find that ignoring labor income generates large utility costs, while the cost of ignoring only its risk is an order of magnitude smaller, except when we allow for a disastrous labor income shock. Moreover, we study the implications of introducing endogenous borrowing constraints in this incomplete-markets setting.
Author | : Ayman Hindy |
Publisher | : Forgotten Books |
Total Pages | : 40 |
Release | : 2018-02-12 |
Genre | : Mathematics |
ISBN | : 9780656401918 |
Excerpt from Optimal Consumption and Portfolio Rules: With Local Substitution Now consider an agent with a time-additive utility function for consumption, u(c, t) and an initial wealth W0 0. Assume throughout that u(c, t) is continuous in concave and increasing in c, and is possibly unbounded from below at c 0. This agent wants to manage a portfolio of the risky securities and the bond, and withdraw funds out of the portfolio to maximize his expected utility of consumption over time. Our task here is to find conditions on the utility function and on the price processes to guarantee the existence of a solution to the agent's problem. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Author | : Qian Lin |
Publisher | : |
Total Pages | : |
Release | : 2014 |
Genre | : |
ISBN | : |
We consider optimal consumption and portfolio choice in the presence of Knightian uncertainty in continuous-time. We embed the problem into the new framework of stochastic calculus for such settings, dealing in particular with the issue of non-equivalent multiple priors. We solve the problem completely by identifying the worst-case measure. Our setup also allows to consider interest rate uncertainty; we show that under some robust parameter constellations, the investor optimally puts all his wealth into the asset market, and does not save or borrow at all.
Author | : Claus Munk |
Publisher | : |
Total Pages | : 24 |
Release | : 1997 |
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Author | : |
Publisher | : |
Total Pages | : 75 |
Release | : 2016 |
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Author | : Larry Selden |
Publisher | : |
Total Pages | : 0 |
Release | : 1977 |
Genre | : Economics |
ISBN | : |
Author | : Giuliano Curatola |
Publisher | : |
Total Pages | : |
Release | : 2016 |
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Author | : John Y. Campbell |
Publisher | : |
Total Pages | : 74 |
Release | : 2010 |
Genre | : |
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This paper proposes and implements a new approach to a classic unsolved problem in financial economics: the optimal consumption and portfolio choice problem of a long-lived investor facing time-varying investment opportunities. The investor is assumed to be infinitely-lived, to have recursive Epstein-Zin-Weil utility, and to choose in discrete time between a riskless asset with a constant return, and a risky asset with constant return variance whose expected log return follows and AR(1) process. The paper approximates the choice problem by log-linearizing the budget constraint and Euler equations, and derives an analytical solution to the approximate problem. When the model is calibrated to US stock market data it implies that intertemporal hedging motives greatly increase, and may even double, the average demand for stocks by investors whose risk-aversion coefficients exceed one.