Optimal consumption and portfolio choice with ambiguity

Qian Lin and Frank Riedel
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Qian Lin: Center for Mathematical Economics, Bielefeld University

No 497, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: We consider optimal consumption and portfolio choice in the presence of Knightian uncertainty in continuous-time. We embed the problem into the new framework of stochastic calculus for such settings, dealing in particular with the issue of non-equivalent multiple priors. We solve the problem completely by identifying the worst-case measure. Our setup also allows to consider interest rate uncertainty; we show that under some robust parameter constellations, the investor optimally puts all his wealth into the asset market, and does not save or borrow at all.

Keywords: Robust Finance; Optimal Portfolio Choice; Knightian Uncertainty; Ambiguity; Model Uncertainty (search for similar items in EconPapers)
Pages: 42
Date: 2014-05-08
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (27)

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https://pub.uni-bielefeld.de/download/2675321/2901864 First Version, 2014 (application/x-download)

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Working Paper: Optimal consumption and portfolio choice with ambiguity (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:497

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