Consumption and Portfolio Rules for Time-Inconsistent Investors

Details Consumption and Portfolio Rules for Time-Inconsistent Investors Consumption and Portfolio Rules for Time-Inconsistent Investors

2009-01-16

arxiv.org/abs/0901.2484v2

Economy

Quantitative Finance

Portfolio Management

Scientific paper

This paper extends the classical consumption and portfolio rules model in continuous time (Merton 1969, 1971) to the framework of decision-makers with time-inconsistent preferences. The model is solved for different utility functions for both, naive and sophisticated agents, and the results are compared. In order to solve the problem for sophisticated agents, we derive a modified HJB (Hamilton-Jacobi-Bellman) equation. It is illustrated how for CRRA functions within the family of HARA functions (logarithmic and potential cases) the optimal portfolio rule does not depend on the discount rate, but this is not the case for a general utility function, such as the exponential (CARA) utility function.

Affiliated with

Also associated with

No associations

Rating

Consumption and Portfolio Rules for Time-Inconsistent Investors does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Consumption and Portfolio Rules for Time-Inconsistent Investors, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Consumption and Portfolio Rules for Time-Inconsistent Investors will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-127484