TY  - RPRT
A1  - Kraft, Holger
A1  - Seiferling, Thomas
A1  - Seifried, Frank Thomas
T1  - Asset pricing and consumption-portfolio choice with recursive utility and unspanned risk : [version 4 august 2014]
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.
KW  - consumption-portfolio choice
KW  - asset pricing
KW  - stochastic differential utility
KW  - incomplete markets
KW  - FBSDE
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34772
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-347720
UR  - http://ssrn.com/abstract=2424706
N1  - Date: first version: March 6, 2014; this version: August 4, 2014.
IS  - version 4 august 2014
SP  - 1
EP  - 44
ER  -