Optimal Consumption and Investment with Epstein-Zin Recursive Utility
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Date
2016-07-04
Author
Kraft, Holger
Seiferling, Thomas
Seifried, Frank Thomas
SAFE No.
52
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Abstract
We study continuous-time optimal consumption and investment with Epstein-Zin recursive preferences in incomplete markets. We develop a novel approach that rigorously constructs the solution of the associated Hamilton-Jacobi-Bellman equation by a fixed point argument and makes it possible to compute both indirect utility and, more importantly, optimal strategies. Based on these results, we also establish a fast and accurate method for numerical computations. Our setting is not restricted to affine asset price dynamics; we only require boundedness of the underlying model coefficients.
Research Area
Financial Markets
Keywords
consumption-portfolio choice, asset pricing, stochastic di erential utility, incomplete markets, fixed point approach, fbsde
JEL Classification
G11, G12, D52, D91, C61, C68
Topic
Systematic Risk
Corporate Governance
Consumption
Corporate Governance
Consumption
Relations
1
Publication Type
Working Paper
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- LIF-SAFE Working Papers [334]