The Exact Solution of Multi-period Portfolio Choice Problem with Exponential Utility

Taras Bodnar (), Nestor Parolya and Wolfgang Schmid ()
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Taras Bodnar: University of Stockholm
Wolfgang Schmid: European University Viadrina

A chapter in Operations Research Proceedings 2014, 2016, pp 45-51 from Springer

Abstract: Abstract In the current paper we derive the exact analytical solution of the multi-period portfolio choice problem for an exponential utility function. It is assumed that the asset returns depend on predictable variables and that the joint random process of the asset returns follows a vector autoregression. We prove that the optimal portfolio weights depend on the covariance matrices of the next two periods and the conditional mean vector of the next period. The case without predictable variables and the case of independent asset returns are partial cases of our solution.

Keywords: Optimal Portfolio; Risky Asset; Asset Return; Portfolio Weight; Absolute Risk Aversion (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-319-28697-6_7

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DOI: 10.1007/978-3-319-28697-6_7

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