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Abstract, classic, and explicit turnpikes

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  • Paolo Guasoni
  • Constantinos Kardaras
  • Scott Robertson
  • Hao Xing

Abstract

Portfolio turnpikes state that as the investment horizon increases, optimal portfolios for generic utilities converge to those of isoelastic utilities. This paper proves three kinds of turnpikes. In a general semimartingale setting, the abstract turnpike states that optimal final payoffs and portfolios converge under their myopic probabilities. In diffusion models with several assets and a single state variable, the classic turnpike demonstrates that optimal portfolios converge under the physical probability. In the same setting, the explicit turnpike identifies the limit of finite-horizon optimal portfolios as a long-run myopic portfolio defined in terms of the solution of an ergodic HJB equation. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Paolo Guasoni & Constantinos Kardaras & Scott Robertson & Hao Xing, 2014. "Abstract, classic, and explicit turnpikes," Finance and Stochastics, Springer, vol. 18(1), pages 75-114, January.
    • Handle: RePEc:spr:finsto:v:18:y:2014:i:1:p:75-114
    DOI: 10.1007/s00780-013-0216-5
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    Cited by:

    1. Tianran Geng & Thaleia Zariphopoulou, 2017. "Temporal and Spatial Turnpike-Type Results Under Forward Time-Monotone Performance Criteria," Papers 1702.05649, arXiv.org.
    2. Kardaras, Constantinos & Robertson, Scott, 2017. "Continuous-time perpetuities and time reversal of diffusions," LSE Research Online Documents on Economics 67495, London School of Economics and Political Science, LSE Library.
    3. Baojun Bian & Harry Zheng, 2018. "Turnpike Property and Convergence Rate for an Investment and Consumption Model," Papers 1808.04265, arXiv.org.
    4. Scott Robertson & Hao Xing, 2014. "Long Term Optimal Investment in Matrix Valued Factor Models," Papers 1408.7010, arXiv.org.
    5. Constantinos Kardaras & Scott Robertson, 2017. "Continuous-time perpetuities and time reversal of diffusions," Finance and Stochastics, Springer, vol. 21(1), pages 65-110, January.
    6. Paolo Guasoni & Lóránt Nagy & Miklós Rásonyi, 2021. "Young, timid, and risk takers," Mathematical Finance, Wiley Blackwell, vol. 31(4), pages 1332-1356, October.

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    More about this item

    Keywords

    Portfolio choice; Incomplete markets; Long-run; Utility functions; Turnpikes; 93E20; 60H30; G11; C61;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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