Consumption-portfolio choice with preferences for cash
- This paper studies a consumption-portfolio problem where money enters the agent's utility function. We solve the corresponding Hamilton-Jacobi-Bellman equation and provide closed-form solutions for the optimal consumption and portfolio strategy both in an infinite- and finite-horizon setting. For the infinite-horizon problem, the optimal stock demand is one particular root of a polynomial. In the finite-horizon case, the optimal stock demand is given by the inverse of the solution to an ordinary differential equation that can be solved explicitly. We also prove verification results showing that the solution to the Bellman equation is indeed the value function of the problem. From an economic point of view, we find that in the finite-horizon case the optimal stock demand is typically decreasing in age, which is in line with rules of thumb given by financial advisers and also with recent empirical evidence.
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| Verfasserangaben: | Holger KraftGND, Farina Weiss |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-438732 |
| URL: | https://ssrn.com/abstract=3034165 |
| Titel des übergeordneten Werkes (Englisch): | SAFE working paper series ; No. 181 |
| Schriftenreihe (Bandnummer): | SAFE working paper (181) |
| Verlag: | SAFE |
| Verlagsort: | Frankfurt am Main |
| Dokumentart: | Arbeitspapier |
| Sprache: | Englisch |
| Jahr der Fertigstellung: | 2017 |
| Jahr der Erstveröffentlichung: | 2017 |
| Veröffentlichende Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Datum der Freischaltung: | 17.10.2017 |
| Freies Schlagwort / Tag: | consumption-portfolio choice; money in the utility function; stochastic control; stock demand |
| Ausgabe / Heft: | September 8, 2017 |
| Seitenzahl: | 36 |
| HeBIS-PPN: | 419184384 |
| Institute: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| DDC-Klassifikation: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Lizenz (Deutsch): |  Deutsches Urheberrecht |
