Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97623
Authors: 
Kraft, Holger
Seiferling, Thomas
Seifried, Frank Thomas
Year of Publication: 
2014
Series/Report no.: 
SAFE Working Paper Series 52
Abstract: 
We study consumption-portfolio and asset pricing frameworks with recursive preferences and unspanned risk. We show that in both cases, portfolio choice and asset pricing, the value function of the investor/representative agent can be characterized by a specific semilinear partial differential equation. To date, the solution to this equation has mostly been approximated by Campbell-Shiller techniques, without addressing general issues of existence and uniqueness. We develop a novel approach that rigorously constructs the solution by a fixed point argument. We prove that under regularity conditions a solution exists and establish a fast and accurate numerical method to solve consumption-portfolio and asset pricing problems with recursive preferences and unspanned risk. Our setting is not restricted to affine asset price dynamics. Numerical examples illustrate our approach.
Subjects: 
consumption-portfolio choice
asset pricing
stochastic differential utility
incomplete markets
fixed point approach
FBSDE
JEL: 
G11
G12
D52
D91
C61
C68
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.