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Lifetime investment and consumption with recursive preferences and small transaction costs

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  • Yaroslav Melnyk
  • Johannes Muhle‐Karbe
  • Frank Thomas Seifried

Abstract

We investigate the effects of small proportional transaction costs on lifetime consumption and portfolio choice. The extant literature has focused on agents with additive utilities. Here, we extend this analysis to the archetype of nonadditive preferences: the isoelastic recursive utilities proposed by Epstein and Zin.

Suggested Citation

  • Yaroslav Melnyk & Johannes Muhle‐Karbe & Frank Thomas Seifried, 2020. "Lifetime investment and consumption with recursive preferences and small transaction costs," Mathematical Finance, Wiley Blackwell, vol. 30(3), pages 1135-1167, July.
    • Handle: RePEc:bla:mathfi:v:30:y:2020:i:3:p:1135-1167
    DOI: 10.1111/mafi.12245
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    References listed on IDEAS

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    18. Stefan Gerhold & Paolo Guasoni & Johannes Muhle-Karbe & Walter Schachermayer, 2014. "Transaction costs, trading volume, and the liquidity premium," Finance and Stochastics, Springer, vol. 18(1), pages 1-37, January.
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    Cited by:

    1. Martin Herdegen & David Hobson & Joseph Jerome, 2023. "The infinite-horizon investment–consumption problem for Epstein–Zin stochastic differential utility. II: Existence, uniqueness and verification for ϑ ∈ ( 0 , 1 ) $\vartheta \in (0,1)$," Finance and Stochastics, Springer, vol. 27(1), pages 159-188, January.
    2. Zixin Feng & Dejian Tian, 2021. "Optimal consumption and portfolio selection with Epstein-Zin utility under general constraints," Papers 2111.09032, arXiv.org, revised May 2023.
    3. Xinfu Chen & Min Dai & Wei Jiang & Cong Qin, 2022. "Asymptotic analysis of long‐term investment with two illiquid and correlated assets," Mathematical Finance, Wiley Blackwell, vol. 32(4), pages 1133-1169, October.
    4. David Hobson & Martin Herdegen & Joseph Jerome, 2021. "The Infinite Horizon Investment-Consumption Problem for Epstein-Zin Stochastic Differential Utility," Papers 2107.06593, arXiv.org.
    5. Martin Herdegen & David Hobson & Alex S. L. Tse, 2024. "Portfolio Optimization under Transaction Costs with Recursive Preferences," Papers 2402.08387, arXiv.org.
    6. Martin Herdegen & David Hobson & Joseph Jerome, 2021. "Proper solutions for Epstein-Zin Stochastic Differential Utility," Papers 2112.06708, arXiv.org.

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