Optimal Consumption for Recursive Preferences with Local Substitution under Risk

Hanwu Li and Frank Riedel
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Hanwu Li: Center for Mathematical Economics, Bielefeld University
Frank Riedel: Center for Mathematical Economics, Bielefeld University

No 693, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: We explore intertemporal preferences that are recursive and account for local intertemporal substitution. First, we establish a rigorous foundation for these preferences and analyze their properties. Next, we examine the associated optimal consumption problem, proving the existence and uniqueness of the optimal consumption plan. We present an infinite-dimensional version of the Kuhn-Tucker theorem, which provides the necessary and sufficient conditions for optimality. Additionally, we investigate quantitative properties and the construction of the optimal consumption plan. Finally, we offer a detailed description of the structure of optimal consumption within a geometric Poisson framework.

Keywords: recursive utility; intertemporal substitution; Hindy-Huang-Kreps preferences; backward stochastic differential equation with jumps; Poisson processes (search for similar items in EconPapers)
Pages: 29
Date: 2024-09-23
New Economics Papers: this item is included in nep-ipr and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:693

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