Optimal consumption and investment with Epstein-Zin recursive utility

Holger Kraft, Thomas Seiferling and Frank Thomas Seifried

No 52, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

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.

Keywords: consumption-portfolio choice; asset pricing; stochastic di erential utility; incomplete markets; fixed point approach; FBSDE (search for similar items in EconPapers)
JEL-codes: C61 C68 D52 D91 G11 G12 (search for similar items in EconPapers)
Date: 2016, Revised 2016
New Economics Papers: this item is included in nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:52

DOI: 10.2139/ssrn.2444747

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