Convergence Rates of Turnpike Theorems for Portfolio Choice in Stochastic Factor Models

Hiroki Yamamichi

Papers from arXiv.org

Abstract: Turnpike theorems state that if an investor's utility is asymptotically equivalent to a power utility, then the optimal investment strategy converges to the CRRA strategy as the investment horizon tends to infinity. This paper aims to derive the convergence rates of the turnpike theorem for optimal feedback functions in stochastic factor models. In these models, optimal feedback functions can be decomposed into two terms: myopic portfolios and excess hedging demands. We obtain convergence rates for myopic portfolios in nonlinear stochastic factor models and for excess hedging demands in quadratic term structure models, where the interest rate is a quadratic function of a multivariate Ornstein-Uhlenbeck process. We show that the convergence rates are determined by (i) the decay speed of the price of a zero-coupon bond and (ii) how quickly the investor's utility becomes power-like at high levels of wealth. As an application, we consider optimal collective investment problems and show that sharing rules for terminal wealth affect convergence rates.

Date: 2025-11
New Economics Papers: this item is included in nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2512.00346 Latest version (application/pdf)

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:arx:papers:2512.00346

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().