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Gain/Loss Asymmetric Stochastic Differential Utility

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  • Yuki SHIGETA

Abstract

This study examines a gain/loss asymmetric utility in continuous time in which the investor discounts their utility gain by more than the utility loss. By employing the theory of stochastic di erential utility, the model allows a time-variable sub- jective discount rate. In addition, the model can express various forms of utility functions including a version of the Epstein{Zin utility. Under the model, the opti- mal consumption/wealth ratio and portfolio weight have di erent functional forms depending on whether the state variables stay in some region.

Suggested Citation

  • Yuki SHIGETA, 2019. "Gain/Loss Asymmetric Stochastic Differential Utility," Discussion papers e-19-004, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-19-004
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    More about this item

    Keywords

    Gain/Loss Asymmetry; Stochastic Di erential Utility; Consumption{Investment Problem;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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