EconPapers    
Economics at your fingertips  
 

Robust consumption and portfolio policies when asset prices can jump

Yacine Ait-Sahalia and Felix Matthys

Journal of Economic Theory, 2019, vol. 179, issue C, 1-56

Abstract: We study the consumption-portfolio allocation problem in continuous time when asset prices follow Lévy processes and the investor is concerned about potential model misspecification. We derive optimal consumption and portfolio policies that are robust to uncertainty about the hard-to-estimate drift rate, jump intensity and jump size parameters. We also provide a semi-closed form formula for the detection-error probability and compare various portfolio holding strategies, including robust and non-robust policies. Our quantitative analysis shows that ignoring uncertainty leads to significant wealth loss for the investor.

Keywords: Optimal consumption and portfolio selection; Jumps; Lévy processes; Robust control (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S002205311830591X
Full text for ScienceDirect subscribers only

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:eee:jetheo:v:179:y:2019:i:c:p:1-56

DOI: 10.1016/j.jet.2018.09.006

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).

 
Page updated 2024-12-28
Handle: RePEc:eee:jetheo:v:179:y:2019:i:c:p:1-56