TY  - UNPD
A1  - Kraft, Holger
A1  - Seiferling, Thomas
A1  - Seifried, Frank Thomas
T1  - Asset pricing and consumption-portfolio choice with recursive utility and unspanned risk : [version 1 june 2014]
T2  - SAFE working paper series ; No. 52
N2  - We study consumption-portfolio and asset pricing frameworks with recursive preferences and unspanned risk. We show that in both cases, portfolio choice and asset pricing, the value function of the investor/representative agent can be characterized by a specific semilinear partial differential equation. To date, the solution to this equation has mostly been approximated by Campbell-Shiller techniques, without addressing general issues of existence and uniqueness. We develop a novel approach that rigorously constructs the solution by a fixed point argument. We prove that under regularity conditions a solution exists and establish a fast and accurate numerical method to solve consumption-portfolio and asset pricing problems with recursive preferences and unspanned risk. Our setting is not restricted to affine asset price dynamics. Numerical examples illustrate our approach.
T3  - SAFE working paper - 52 
KW  - consumption-portfolio choice
KW  - asset pricing
KW  - stochastic differential utility
KW  - incomplete markets
KW  - fixed point approach
KW  - FBSDE
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34180
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-341801
UR  - http://ssrn.com/abstract=2444747
N1  - Date: first version: March 6, 2014; this version: June 1, 2014.
IS  - vers. June 1, 2014
PB  - SAFE
CY  - Frankfurt am Main
ER  -