Optimal Portfolio and Consumption Decisions in a Stochastic Environment with Precommitment PDF Download
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Author: Isaac Ehrlich
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In this paper we solve the stochastic portfolios-consumption control problem under the assumption that individuals follow precommitment strategies over finite intervals of time. This precommitment approach is an alternative to Merton's (1969) continuous-time stochastic dynamic control problem which assumes instantaneous feedback and costless revisions of choices all along the time path. Our solution to the problem is contrasted with that of Merton and several other contributions to the subject. We show that under precommitment individuals will tend to hold portfolios that are a function of their expected risk and return parameters, but are independent of their wealth levels and risk preferences. We also show that the intertemporal consumption growth path would be a relatively smooth function of the risk-free rate of return, time preference, and the coefficient of relative risk aversion, and independent of the portfolio's risk parameters. The latter would influence only the initial consumption level. We derive a number of empirical implications of our analysis for both portfolio holding and consumption patterns.
Author: Isaac Ehrlich
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In this paper we solve the stochastic portfolios-consumption control problem under the assumption that individuals follow precommitment strategies over finite intervals of time. This precommitment approach is an alternative to Merton's (1969) continuous-time stochastic dynamic control problem which assumes instantaneous feedback and costless revisions of choices all along the time path. Our solution to the problem is contrasted with that of Merton and several other contributions to the subject. We show that under precommitment individuals will tend to hold portfolios that are a function of their expected risk and return parameters, but are independent of their wealth levels and risk preferences. We also show that the intertemporal consumption growth path would be a relatively smooth function of the risk-free rate of return, time preference, and the coefficient of relative risk aversion, and independent of the portfolio's risk parameters. The latter would influence only the initial consumption level. We derive a number of empirical implications of our analysis for both portfolio holding and consumption patterns.
Author: Erricos John Kontoghiorghes
Publisher: Springer Science & Business Media
ISBN: 1475736134
Category : Business & Economics
Languages : en
Pages : 626
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Book Description
Computing has become essential for the modeling, analysis, and optimization of systems. This book is devoted to algorithms, computational analysis, and decision models. The chapters are organized in two parts: optimization models of decisions and models of pricing and equilibria.
Author: Karan Thagunna
Publisher: LAP Lambert Academic Publishing
ISBN: 9783838353975
Category :
Languages : en
Pages : 112
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Book Description
In this dissertation, we consider a particular case of an optimal consumption and portfolio selection problem for an innitely lived investor whose consumption rate process is subject to downside constraint. We also suppose that the wealth dynamics is composed of three assets (i) riskless assets (ii) risky assets (iii) hedge assets. We consider the investor's wealth process, interpreted in the sense of the It DEGREESo integral.Our work aims to find the optimal policies which maximize the expected discount utility function.Furthermore, we obtain the optimal policies in an explicit form for the log utility function which is a special case of the general utility (CRRA) function, using the martingale method and applying the Legendre transform formula and the Feynman-kac formula. We derive some numerical results for the optimal policies and compare the results with the classical Merton's result evaluated for an innite horizon case.
Author: Ralf Korn
Publisher: World Scientific
ISBN: 9812385347
Category : Business & Economics
Languages : en
Pages : 352
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Book Description
The focus of the book is the construction of optimal investment strategies in a security market model where the prices follow diffusion processes. It begins by presenting the complete Black-Scholes type model and then moves on to incomplete models and models including constraints and transaction costs. The models and methods presented will include the stochastic control method of Merton, the martingale method of Cox-Huang and Karatzas et al., the log optimal method of Cover and Jamshidian, the value-preserving model of Hellwig etc.
Author: Isaac Ehrlich
Publisher:
ISBN:
Category : Education
Languages : en
Pages : 76
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Book Description
Risky-asset prices are conventionally modeled as "fully (information-) revealing". Much less work has been done on how prices get to reveal information. Following the "noisy-prices", rational-expectations approach, our answer focuses on the micro-foundations of information acquisition and the role of human capital in asset, or risk, management. We derive testable propositions on how education and other determinants of asset management affect its intensity, risky-asset demand, and portfolio returns. We derive related insights concerning determinants of the level and volatility of asset prices and equity premiums. Using micro-level data on portfolio choices, we find that education raises both the portfolio share of risky assets and overall portfolio returns, while a measure of the opportunity cost of asset management has the opposite effects. Our results indicate a non-trivial return to education in generating non-wage income. They suggest that educational attainments directly affect the distribution of income as well as earnings.
Author: Holger Kraft
Publisher: Springer Science & Business Media
ISBN: 9783540212300
Category : Business & Economics
Languages : en
Pages : 190
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Book Description
The continuous-time portfolio problem consists of finding the optimal investment strategy of an investor. In the classical Merton problem the investor can allocate his funds to a riskless savings account and risky assets. However, to get explicit results, it is assumed that the interest rates are deterministic and that the assets are default free. In this monograph both assumptions are weakened: The author analyzes and solves portfolio problems with stochastic interest rates and with defaultable assets. Besides, he briefly discusses how portfolio problems with foreign assets can be handled. The focus of the monograph is twofold: On the one hand, the economical problems are carefully explained, on the other hand their formal solution is rigorously presented. For this reason the text should be of interest to researchers with a Finance background as well as to researchers with a more formal background who would like to see how mathematics is applied to portfolio theory. TOC:Preliminaries from Stochastics.- Optimal Portfolios with Stochastic Interest Rates.- Elasticity Approach to Portfolio Optimization.- Barrier Derivatives with Curved Boundaries.- Optimal Portfolios with Dafaultable Assets - A Firm Value Approach.- References.- Abbreviations.- Notations.
Author: Nicolas Chapados
Publisher: Springer Science & Business Media
ISBN: 1461405777
Category : Computers
Languages : en
Pages : 107
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Book Description
This brief offers a broad, yet concise, coverage of portfolio choice, containing both application-oriented and academic results, along with abundant pointers to the literature for further study. It cuts through many strands of the subject, presenting not only the classical results from financial economics but also approaches originating from information theory, machine learning and operations research. This compact treatment of the topic will be valuable to students entering the field, as well as practitioners looking for a broad coverage of the topic.
Author: Dimitris Melas
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This thesis addresses three optimisation problems. The first problem concerns static portfolio optimization. Empirical evidence suggests that asset dynamics can be characterised by a multifactor representation of asset returns. In this context, investors can capture the premium or hedge the risk associated with a particular factor through factor-mimicking portfolios. We examine different methods for constructing optimal factor-mimicking portfolios. We provide analytical considerations in the construction of factor-mimicking portfolios, along with empirical evidence. Also, we illustrate potential practical applications of factor-mimicking portfolios in the institutional investment process. The second problem addresses continuous time optimal consumption and investment for an agent investing in a complete arbitrage-free market consisting of several risky assets and a bank account. In particular, we consider a general model in which the agent's preferences exhibit a linear habit formation pattern that captures the effect of past consumption on current utility. Using duality methods, we establish the existence of an optimal consumption and investment strategy. We also prove that the optimal portfolio consumption pair can be expressed in terms of the solution to the Hamilton-Jacobi-Bellman equation that the problem's value function satisfies. The third problem concerns a general one-dimensional lro diffusion which must be maintained within an externally specified bounded interval by means of an impulse control process. We minimise a long-term average criterion that penalises deviations of the state process from a given nominal point within this region as well as the use of impulsive control effort. We solve the resulting optimisation problem and we provide an explicit optimal control strategy under general assumptions. The model that we study is motivated by several applications, including the problem of determining an optimal central bank intervention strategy aiming at the control of an exchange rate or an inflation rate, as well as the problem of designing optimal contribution policies in defined benefit pension plans.
Author:
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 1272
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Book Description
Author: 葛蕾
Publisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages : 79
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Book Description
