Optimal consumption and investment with Epstein–Zin recursive utility

Holger Kraft (), Thomas Seiferling () and Frank Thomas Seifried ()
Additional contact information
Holger Kraft: Goethe University
Thomas Seiferling: University of Kaiserslautern
Frank Thomas Seifried: University of Trier

Finance and Stochastics, 2017, vol. 21, issue 1, No 5, 187-226

Abstract: 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 the 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.

Keywords: Consumption-portfolio choice; Asset pricing; Stochastic differential utility; Incomplete markets; Fixed point approach; FBSDE; 93E20; 91G10; 91B25 (search for similar items in EconPapers)
JEL-codes: C61 C68 D52 D91 G11 G12 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
http://link.springer.com/10.1007/s00780-016-0316-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:21:y:2017:i:1:d:10.1007_s00780-016-0316-0

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-016-0316-0

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().