Abstract, Classic, and Explicit Turnpikes

Paolo Guasoni, Constantinos Kardaras, Scott Robertson and Hao Xing

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Abstract: Portfolio turnpikes state that, as the investment horizon increases, optimal portfolios for generic utilities converge to those of isoelastic utilities. This paper proves three kinds of turnpikes. In a general semimartingale setting, the abstract turnpike states that optimal final payoffs and portfolios converge under their myopic probabilities. In diffusion models with several assets and a single state variable, the classic turnpike demonstrates that optimal portfolios converge under the physical probability; meanwhile the explicit turnpike identifies the limit of finite-horizon optimal portfolios as a long-run myopic portfolio defined in terms of the solution of an ergodic HJB equation.

Date: 2011-01, Revised 2012-02
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1101.0945

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