Asset pricing and consumption-portfolio choice with recursive utility and unspanned risk : [version 4 august 2014]

  • 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.

Download full text files

Export metadata

Additional Services

Share in Twitter Search Google Scholar
Metadaten
Author:Holger KraftGND, Thomas Seiferling, Frank Thomas SeifriedGND
URN:urn:nbn:de:hebis:30:3-347720
URL:http://ssrn.com/abstract=2424706
DOI:https://doi.org/10.2139/ssrn.2424706
Document Type:Report
Language:English
Year of Completion:2014
Year of first Publication:2014
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/09/02
Tag:FBSDE; asset pricing; consumption-portfolio choice; incomplete markets; stochastic differential utility
Issue:version 4 august 2014
Page Number:44
First Page:1
Last Page:44
Note:
Date: first version: March 6, 2014; this version: August 4, 2014.
HeBIS-PPN:348104200
Institutes: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)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht