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Lifetime consumption-portfolio choice under trading constraints, recursive preferences, and nontradeable income

Listed author(s):
  • Schroder, Mark
  • Skiadas, Costis
Registered author(s):

    We analyze the lifetime consumption-portfolio problem in a competitive securities market with continuous price dynamics, possibly nontradeable income, and convex trading constraints. We define a class of "translation-invariant" recursive preferences, which includes additive exponential utility, but also nonadditive recursive and multiple-prior formulations, and allows for first and second-order source-dependent risk aversion. For this class, we show that the solution reduces to a single constrained backward stochastic differential equation, which for an interesting class of incomplete-market problems simplifies to a system of ordinary differential equations of the Riccati type.

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    Article provided by Elsevier in its journal Stochastic Processes and their Applications.

    Volume (Year): 115 (2005)
    Issue (Month): 1 (January)
    Pages: 1-30

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    Handle: RePEc:eee:spapps:v:115:y:2005:i:1:p:1-30
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