Optimal consumption and investment with Epstein-Zin recursive utility

Arbeitspapier

We study continuous-time optimal consumption and investment with Epstein-Zin recursive preferences in incomplete markets. We develop a novel approach that rigorously constructs the solution of the associated Hamilton-Jacobi-Bellman equation by a fixed point argument and makes it possible to compute both indirect utility and, more importantly, optimal strategies. Based on these results, we also establish a fast and accurate method for numerical computations. Our setting is not restricted to affine asset price dynamics; we only require boundedness of the underlying model coefficients.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 52

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates ; Incomplete Markets ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Optimization Techniques; Programming Models; Dynamic Analysis ; Computable General Equilibrium Models
• Subject: consumption-portfolio choice ; asset pricing ; stochastic di erential utility ; incomplete markets ; fixed point approach ; FBSDE

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kraft, Holger ; Seiferling, Thomas ; Seifried, Frank Thomas
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (where): Frankfurt a. M.
• (when): 2016

Further information

• DOI: doi:10.2139/ssrn.2444747
• Handle: http://hdl.handle.net/10419/203276
• Last update: 10.03.2025, 11:44 AM CET