IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-00940233.html
   My bibliography  Save this paper

Optimal allocation of wealth for two consuming agents sharing a portfolio

Author

Listed:
  • Oumar Mbodji

    (Department of Mathematics and Statistics, McMaster University, Hamilton, Canada)

  • Adrien Nguyen Huu

    () (CERMICS - Centre d'Enseignement et de Recherche en Mathématiques et Calcul Scientifique - École des Ponts ParisTech (ENPC) - UPE - Université Paris-Est)

  • Traian A. Pirvu

    (Department of Mathematics and Statistics, McMaster University, Hamilton, Canada)

Abstract

We study the Merton problem of optimal consumption-investment for the case of two investors sharing a final wealth. The typical example would be a husband and wife sharing a portfolio looking to optimize the expected utility of consumption and final wealth. Each agent has different utility function and discount factor. An explicit formulation for the optimal consumptions and portfolio can be obtained in the case of a complete market. The problem is shown to be equivalent to maximizing three different utilities separately with separate initial wealths. We study a numerical example where the market price of risk is assumed to be mean reverting, and provide insights on the influence of risk aversion or discount rates on the initial optimal allocation.

Suggested Citation

  • Oumar Mbodji & Adrien Nguyen Huu & Traian A. Pirvu, 2014. "Optimal allocation of wealth for two consuming agents sharing a portfolio," Working Papers hal-00940233, HAL.
  • Handle: RePEc:hal:wpaper:hal-00940233
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00940233v2
    as

    Download full text from publisher

    File URL: https://hal.archives-ouvertes.fr/hal-00940233v2/document
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    2. Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
    3. repec:dau:papers:123456789/11473 is not listed on IDEAS
    4. Kim, Tong Suk & Omberg, Edward, 1996. "Dynamic Nonmyopic Portfolio Behavior," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 141-161.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    portfolio optimization; time inconsistency; portfolio management; market price of risk; optimal consumption;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00940233. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.