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Optimal multi-period consumption and investment with short-sale constraints

Author

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  • Arısoy, Yakup Eser
  • Altay-Salih, Aslıhan
  • Pınar, Mustafa Ç

Abstract

This article examines agents’ consumption-investment problem in a multi-period pure exchange economy where agents are constrained with the short-sale of state-dependent risky contingent claims. In equilibrum, agents hold options written on aggregate consumption in their optimal portfolios. Furthermore, under the specific case of quadratic utility, the optimal risk-sharing rule derived for the pricing agent leads to a multifactor conditional consumption-based capital asset pricing model (CCAPM), where excess option returns appear as factors.

Suggested Citation

  • Arısoy, Yakup Eser & Altay-Salih, Aslıhan & Pınar, Mustafa Ç, 2014. "Optimal multi-period consumption and investment with short-sale constraints," Finance Research Letters, Elsevier, vol. 11(1), pages 16-24.
  • Handle: RePEc:eee:finlet:v:11:y:2014:i:1:p:16-24
    DOI: 10.1016/j.frl.2013.05.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Options; Optimization; Short-sales; Consumption-based CAPM;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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