Kraft, Holger Seiferling, Thomas Seifried, Frank Thomas
Year of Publication:
SAFE Working Paper 52
We study continuous-time optimal consumption and investment with Epstein-Zin recursive preferences in incomplete markets. We develop a novel approach that rigorously constructs the solution of the associated Hamilton-Jacobi-Bellman equation by a fixed point argument and makes it possible to compute both indirect utility and, more importantly, optimal strategies. Based on these results, we also establish a fast and accurate method for numerical computations. Our setting is not restricted to affine asset price dynamics; we only require boundedness of the underlying model coefficients.
consumption-portfolio choice asset pricing stochastic di erential utility incomplete markets fixed point approach FBSDE