Optimal consumption and portfolio choice with ambiguity

Qian Lin and Frank Riedel

Papers from arXiv.org

Abstract: We consider optimal consumption and portfolio choice in the presence of Knightian uncertainty in continuous-time. We embed the problem into the new framework of stochastic calculus for such settings, dealing in particular with the issue of non-equivalent multiple priors. We solve the problem completely by identifying the worst--case measure. Our setup also allows to consider interest rate uncertainty; we show that under some robust parameter constellations, the investor optimally puts all his wealth into the asset market, and does not save or borrow at all.

Date: 2014-01
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Citations: View citations in EconPapers (27)

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Working Paper: Optimal consumption and portfolio choice with ambiguity (2014)
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