Dynamic portfolio choice under ambiguity and regime switching mean returns

Abstract

Out-of-sample experiments demonstrate the economic importance of accounting for ambiguity.JEL: G11, D81, C61

Robust portfolio choice with derivative trading under stochastic volatility

“…Liu (2010) extends that analysis to Epstein-Zin preferences. Liu (2011) studies ambiguity in a setting with regime-switching expected stock return with the current regime being unobservable. Uppal and Wang (2003) consider a model with different levels of ambiguity about the joint and marginal distributions of the state variables.…”

Ignorance, Uncertainty, and Strategic Consumption-Portfolio Decisions

“…it is straightforward to show that Figure 13 shows that RB reduces the equilibrium interest rate and increases the equilibrium equity premium, respectively, for the estimated and calibrated parameter values reported in the last subsection. 38 In addition, we can also see that the EIS can amplify the effects of RB on the equilibrium asset returns. Given the plausibly estimated parameter values, we find that the direct channel dominate the indirect channel.…”

Robust optimal consumption-investment strategy with non-exponential discounting

“…[24] examines the robust consumption and portfolio choice for time-varying investment opportunities. [25] discusses a continuous-time intertemporal consumption and portfolio choice problem under ambiguity, where expected 1 As the statement in [8], for a dynamic optimization problem, if the strategy πt 1 is optimal for the decision-maker at some time t 1 , and for any later time t 2 > t 1 , she will follow the strategy πt 1 if it is still optimal at time t 2 , i.e., πt 1 (t) = πt 2 (t) for all t > t 2 , then it is called a time-consistent strategy, see [5], [6], and so on. If a strategy is optimal at a time t 1 , while is not optimal at some later time t 2 , i.e., πt 1 (t) = πt 2 (t) for some t > t 2 , then πt 1 (t) is a time-inconsistent strategy.…”