General Analytical Solutions For Mertons'S-Type Consumption-Investment Problems
We solve analytically the Merton's problem of an investor with time additive power utility. For general state dynamics, we prove existence of two power series representations of the relevant optimal policies and value functions, which hold for all admissible risk aversion parameters. We characterize all terms in the power series by a recursive formula, allowing analytical computations to arbitrary order. Some applications to explicit model settings highlight a very satisfactory accuracy of finite order approximations provided by our power series solution approach.
|Date of creation:||Jan 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Dufourstrasse 50, CH - 9000 St.Gallen|
Phone: +41 71 224 23 25
Fax: +41 71 224 31 35
Web page: http://www.seps.unisg.ch/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. C. Merton, 1970.
"Optimum Consumption and Portfolio Rules in a Continuous-time Model,"
58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
- John Y. Campbell, 1992.
"Intertemporal Asset Pricing Without Consumption Data,"
NBER Working Papers
3989, National Bureau of Economic Research, Inc.
- Campbell, John Y, 1993. "Intertemporal Asset Pricing without Consumption Data," American Economic Review, American Economic Association, vol. 83(3), pages 487-512, June.
- Campbell, John, 1993. "Intertemporal Asset Pricing Without Consumption Data," Scholarly Articles 3221491, Harvard University Department of Economics.
- Jérôme B. Detemple & René Garcia & Marcel Rindisbacher, 2003.
"A Monte Carlo Method for Optimal Portfolios,"
Journal of Finance,
American Finance Association, vol. 58(1), pages 401-446, 02.
- Fabio Trojani & Paolo Vanini, 2004.
"Robustness and Ambiguity Aversion in General Equilibrium,"
Review of Finance,
European Finance Association, vol. 8(2), pages 279-324.
- Fabio Trojani & Paolo Vanini, 2004. "Robustness and Ambiguity Aversion in General Equilibrium," Review of Finance, Springer, vol. 8(2), pages 279-324.
- Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
- Kim, Tong Suk & Omberg, Edward, 1996. "Dynamic Nonmyopic Portfolio Behavior," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 141-61.
When requesting a correction, please mention this item's handle: RePEc:usg:dp2005:2005-02. 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: (Joerg Baumberger)
If references are entirely missing, you can add them using this form.