Optimal Consumption and Investment with Epstein-Zin Recursive Utility
Seifried, Frank Thomas
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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
G11, G12, D52, D91, C61, C68
Link to Publication
- LIF-SAFE Working Papers