Optimum consumption and portfolio rules in a continuous-time model☆
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In this paper, the authors considered the continuous-time consumption-portfolio problem for an individual whose income is generated by capital gains on investments in assets with prices assumed to satisfy the geometric Brownian motion hypothesis, which implies that asset prices are stationary and lognormally distributed.About:
This article is published in Journal of Economic Theory.The article was published on 1971-12-01 and is currently open access. It has received 4952 citations till now. The article focuses on the topics: Geometric Brownian motion & Intertemporal portfolio choice.read more
Citations
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Interest rate volatility and the shape of the term structure. Discussion
TL;DR: In this article, the effect of interest rate uncertainty on the shape of the forward rate curve is analyzed, and it is shown that, despite the well known shortcomings of single factor models, attempts to fit such models to cross-sections of nominal bond prices nonetheless produce reasonable estimates of interest rates volatility.
Journal ArticleDOI
Firm behaviour under the threat of liquidation
Alistair Milne,Donald Robertson +1 more
TL;DR: In this article, the authors study the optimal behavior of a firm whose cash flow is determined by a diffusion process, facing liquidation if internal cash balances fall below some threshold, where there is a conflict between the desire to pay dividends to satisfy shareholders and the need to retain cash as a barrier against possible liquidation.
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Asset allocation and derivatives
Martin B. Haugh,Andrew W. Lo +1 more
TL;DR: In this article, the authors explore the possibility of constructing buy-and-hold portfolios of options that mimic certain dynamic investment policies, e.g. asset-allocation rules, by solving the following problem: given an optimal dynamic investment policy, find a set of options at the start of the investment horizon which will come closest to the optimal DIP policy, and show that under certain conditions, a portfolio consisting of just a few options is an excellent substitute for considerably more complex DIP policies.
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Sequential Optimal Portfolio Performance: Market and Volatility Timing
TL;DR: This article analyzed the impact of market and volatility timing on the performance of optimal portfolio rules and found that a strategy based solely on volatility timing uniformly outperforms market timing strategies, a model that assumes no predictability and the market return in terms of certainty equivalent gains and Sharpe ratios.
Posted Content
The Equity Premium Puzzle: A Review
Rajnish Mehra,Rajnish Mehra +1 more
TL;DR: In this article, the authors take a retrospective look at the original paper and explain the conclusion that the US equity premium is not a premium for bearing non-diversifiable risk.
References
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Journal ArticleDOI
Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case
TL;DR: In this paper, the combined problem of optimal portfolio selection and consumption rules for an individual in a continuous-time model was examined, where his income is generated by returns on assets and these returns or instantaneous "growth rates" are stochastic.
Book
The theory of stochastic processes
David Cox,Hilton D. Miller +1 more
TL;DR: This book should be of interest to undergraduate and postgraduate students of probability theory.
Book ChapterDOI
Lifetime Portfolio Selection By Dynamic Stochastic Programming
TL;DR: In this paper, the optimal consumption-investment problem for an investor whose utility for consumption over time is a discounted sum of single-period utilities, with the latter being constant over time and exhibiting constant relative risk aversion (power-law functions or logarithmic functions), is discussed.
Book
Stochastic Stability and Control
TL;DR: In this article, a book on stochastic stability and control dealing with Liapunov function approach to study of Markov processes is presented, which is based on the work of this article.
Journal ArticleDOI