Stochastic Differential Utility as the Continuous-Time Limit of Recursive Utility

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Date
2013-05-10
Author
Kraft, Holger
Seifried, Frank Thomas
SAFE No.
17
DOI
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Abstract
We establish a convergence theorem that shows that discrete-time recursive utility, as developed by Kreps and Porteus (1978), converges to stochastic differential utility, as introduced by Duffie and Epstein (1992), in the continuous-time limit of vanishing grid size.
Research Area
Financial Markets
Keywords
stochastic differential utility, recursive utility, convergence, backward stochastic differential equation
JEL Classification
D81, D91
Topic
Monetary Policy
Macro Finance
Consumption
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Publication Type
Working Paper
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