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dc.contributor.authorWachter, Jessica A.-
dc.date.accessioned2008-05-30T23:51:08Z-
dc.date.available2008-05-30T23:51:08Z-
dc.date.issued2000-09-26-
dc.identifier.urihttp://hdl.handle.net/2451/27353-
dc.description.abstractThis paper solves, in closed form, the optimal portfolio choice problem for an investor with utility over consumption under mean-reverting returns. Previous solutions either require approximations, numerical methods, or the assumption that the investor does not consume over his lifetime. This paper breaks the impasse by assuming that markets are complete. The solution leads to a new understanding of hedging demand and the behavior of approximate log-linear solutions. The portfolio allocation takes the form of a weighted average and is shown to be analogous to duration for coupon bonds. Through this analogy, the notion of investment horizon is extended to that of an investor who consumes at multiple points in time.en
dc.language.isoen_USen
dc.relation.ispartofseriesS-MF-00-05en
dc.titleOptimal Consumption and Portfolio Allocation under Mean-Reverting Returns: An Exact Solution for Complete Marketsen
dc.typeWorking Paperen
Appears in Collections:Macro Finance

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