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

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

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.

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Article provided by Elsevier in its journal Finance Research Letters.

Volume (Year): 11 (2014)
Issue (Month): 1 ()
Pages: 16-24

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Handle: RePEc:eee:finlet:v:11:y:2014:i:1:p:16-24
Contact details of provider: Web page: http://www.elsevier.com/locate/frl

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