Lifetime consumption-portfolio choice under trading constraints, recursive preferences, and nontradeable income

Stochastic Processes and their Applications

Volumn 115, Issue 1, 2005, Pages 1-30

  Schroder, Mark ^a   Skiadas, Costis ^b  

^a MICHIGAN STATE UNIVERSITY   (United States)

^b NORTHWESTERN UNIVERSITY   (United States)

Author keywords

BSDE; FBSDE; Finance; Optimal portfolios; Recursive utility

Indexed keywords

CONSTRAINT THEORY; OPTIMIZATION; ORDINARY DIFFERENTIAL EQUATIONS; RANDOM PROCESSES; RICCATI EQUATIONS;

FORWARD-BACKWARD STOCHASTIC DIFFERENTIAL EQUATIONS; OPTIMAL PORTFOLIOS; RECURSIVE UTILITY;

FINANCE;

EID: 10244244992     PISSN: 03044149     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.spa.2004.08.001     Document Type: Article

References (39)

1. G. Chacko, L. Viceira, Dynamic consumption and portfolio choice with stochastic volatility in incomplete markets, Working Paper, Harvard University, 1999.
2. Z. Chen, L. Epstein, Ambiguity, risk, and asset returns in continuous time, Econometrica 70 (2002) 1403-1443.
3. J. Cox, C.-F. Huang, Optimal consumption and portfolio policies when asset prices follow a diffusion process, J. Econ. Theory 49 (1989) 33-83.
4. D. Cuoco, Optimal consumption and equilibrium prices with portfolio constraints and stochastic income, J. Econ. Theory 72 (1997) 33-73.
5. J. Cvitanić, I. Karatzas, Convex duality in constrained portfolio optimization, Ann. Appl. Probab. 2 (1992) 767-818.
6. D. Duffie, L. Epstein, Stochastic differential utility, Econometrica 60 (1992) 353-394.
7. D. Duffie, D. Filipovic, W. Schachermayer, Affine processes and applications in finance, Ann. Appl. Probab. 13 (2003) 984-1053.
8. D. Duffie, V. Fleming, M. Soner, T. Zariphopoulou, Hedging in incomplete markets with HARA utility, J. Econ. Dynam. Control 21 (1997) 753-782.
9. D. Duffie, C. Skiadas, Continuous-time security pricing: a utility gradient approach, J. Math. Econ. 23 (1994) 107-131.
10. N. El Karoui, S. Peng, M.-C. Quenez, A dynamic maximum principle for the optimization of recursive utilities under constraints, Ann. Appl. Probab. 2001, 664-693.
11. D. Ellsberg, Risk, ambiguity, and the savage axioms, Q. J. Econ. 75 (1961) 643-669.
12. L. Epstein, Behavior under risk: recent developments in theory and applications, in: J.-J. Laffont (Ed.), Advances in Economic Theory, Cambridge University Press, Cambridge, UK, 1992.
13. L. Epstein, J. Miao, A two-person dynamic equilibrium under ambiguity, Working Paper, Department of Economics, University of Rochester, Rochester, NY, 2000.
14. H. He, N. Pearson, Consumption and portfolio policies with incomplete markets and short-sale constrains: the infinite dimensional case, J. Econ. Theory 54 (1991) 259-304.
15. S. Heston, A closed-form solution for options with stochastic volatility with applications to bond and currency options, Rev. Financial Stud. 6 (1993) 327-344.
16. J. Hugonnier, D. Kramkov, Optimal investment with random endowments in incomplete markets, Working Paper, HEC Montreal and Carnegie Mellon University, 2002.
17. I. Karatzas, J. Lehoczky, S. Shreve, Optimal portfolio and consumption decisions for a 'small investor' on a finite horizon, SIAM J. Control Optim. 25 (1987) 1557-1586.
18. I. Karatzas, J. Lehoczky, S. Shreve, G. Xu, Martingale and duality methods for utility maximization in an incomplete market, SIAM J. Control Optim. 29 (1991) 702-730.
19. T. Kim, E. Omberg, Dynamic nonmyopic portfolio behavior, Rev. Financial Stud. 9 (1996) 141-162.
20. P. Klibanoff, M. Marinacci, S. Mukerji, A smooth model of decision making under ambiguity, Working Paper, MEDS, Kellogg School of Management, Northwestern University, 2002.
21. H. Koo, Nontraded assets in incomplete markets, Math. Finance 8 (1998) 49-65.
22. D. Kramkov, W. Schachermayer, The asymptotic elasticity of utility functions and optimal investment in incomplete markets, Ann. Appl. Probab. 9 (1999) 904-950.
23. A. Lazrak, M.C. Quenez, A generalized stochastic differential utility, Math. Oper. Res. 28 (2003) 154-180.
24. J. Liu, Portfolio selection in stochastic environments, Working Paper, UCLA, 2001.
25. J. Ma, P. Protter, J. Yong, Solving forward-backward stochastic differential explicitly-a four step scheme, Probab. Theory Related Fields 98 (1994) 339-359.
26. J. Ma, J. Yong, Forward-Backward Stochastic Differential Equations and Their Applications, Springer, Berlin, 1999.
27. R. Merton, Optimum consumption and portfolio rules in a continuous-time model, J. Econ. Theory 3 (1971) 373-413.
28. M. Musiela, T. Zariphopoulou, An example of indifference prices under exponential preferences, Finance Stochastics 8 (2004) 229-239.
29. M. Piazzes, Affine term structure models, in: Handbook of Financial Econometrics, Elsevier, North- Holland, Amsterdam, in press.
30. M. Schroder, C. Skiadas, Optimal consumption and portfolio selection with stochastic differential utility, J. Econ. Theory 89 (1999) 68-126.
31. M. Schroder, C. Skiadas, An isomorphism between asset pricing models with and without linear habit formation, Rev. Financial Stud. 15 (2002) 1189-1221.
32. M. Schroder, C. Skiadas, Optimal lifetime consumption-portfolio strategies under trading constraints and generalized recursive preferences, Stochastic Process. Appl. 108 (2003) 155-202.
33. M. Schroder, C. Skiadas, Quasiarbitrage, optimality, state pricing and duality in constrained financial markets with continuous and discontinuous information, Working Paper 327, Department of Finance, Kellogg School of Management, Northwestern University, 2004.
34. U. Segal, A. Spivak, First-order versus second-order risk aversion, J. Econ. Theory 51 (1990) 111-125.
35. S. Shreve, G. Xu, A duality method for optimal consumption and investment under short-selling prohibition: I, general market coefficients; and II, constant market coefficients, Ann. Appl. Probab. 2 (1992) 87-112 and 314-328.
36. C. Skiadas, Advances in the theory of choice and asset pricing, Ph.D. Thesis, Stanford University, 1992.
37. C. Skiadas, Robust control and recursive utility, Finance Stochastics 7 (2003) 475-489.
38. L. Svensson, I. Werner, Nontraded assets in incomplete markets: pricing and portfolio choice, European Econ. Rev. 37 (1993) 1149-1168.
39. J. Yong, X.Y. Zhou, Stochastic Controls: Hamiltonian Systems and HJB Equations, Springer, New York, 1999.