Optimal Consumption and Portfolio Selection with Stochastic Differential Utility

Schröder, Mark; Skiadas, Costis

doi:10.2139/ssrn.148148

Cited by 70 publications

(115 citation statements)

References 42 publications

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“…Classic references include Merton (1971) and Kreps and Porteus (1978). Schroder and Skiadas (1999) present state-of-the-art formulations and results.…”

Section: Moving Beyond Maximizing Expected Present Valuesmentioning

confidence: 99%

Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments

Mieghem

2003

M&SOM

512

240

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T his paper reviews the literature on strategic capacity management concerned with determining the sizes, types, and timing of capacity investments and adjustments under uncertainty. Specific attention is given to recent developments to incorporate multiple decision makers, multiple capacity types, hedging, and risk aversion. Capacity is a measure of processing abilities and limitations and is represented as a vector of stocks of various processing resources, while investment is the change of capacity and includes expansion and contraction. After discussing general issues in capacity investment problems, the paper reviews models of capacity investment under uncertainty in three settings:The first reviews optimal capacity investment by single and multiple risk-neutral decision makers in a stationary environment where capacity remains constant. Allowing for multiple capacity types, the associated optimal capacity portfolio specifies the amounts and locations of safety capacity in a processing network. Its key feature is that it is unbalanced; i.e., regardless of how uncertainties are realized, one typically will never fully utilize all capacities. The second setting reviews the adjustment of capacity over time and the structure of optimal investment dynamics. The paper ends by reviewing how to incorporate risk aversion in capacity investment and contrasts hedging strategies involving financial versus operational means.

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“…Classic references include Merton (1971) and Kreps and Porteus (1978). Schroder and Skiadas (1999) present state-of-the-art formulations and results.…”

Section: Moving Beyond Maximizing Expected Present Valuesmentioning

confidence: 99%

Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments

Mieghem

2003

M&SOM

512

240

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“…Hence the Epstein-Zin aggregator, which is non-Lipschitz, is excluded. Schroder and Skiadas [38] studied the case where θ = 1−γ 1−1/ψ is positive.…”

Section: Introductionmentioning

confidence: 99%

“…Regarding market models, Schroder and Skiadas [38] studied a complete market with bounded market price of risk. Schroder and Skiadas [39,Section 5.6], Chacko and Viceira [9] both considered incomplete markets and Epstein-Zin utility with unit EIS.…”

Section: Introductionmentioning

confidence: 99%

Consumption Investment Optimization with Epstein-Zin Utility in Incomplete Markets

Xing

2015

SSRN Journal

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Abstract. In a market with stochastic investment opportunities, we study an optimal consumption investment problem for an agent with recursive utility of Epstein-Zin type. Focusing on the empirically relevant specification where both risk aversion and elasticity of intertemporal substitution are in excess of one, we characterize optimal consumption and investment strategies via backward stochastic differential equations. The supperdifferential of indirect utility is also obtained, meeting demands from applications in which Epstein-Zin utilities were used to resolve several asset pricing puzzles. The empirically relevant utility specification introduces difficulties to the optimization problem due to the fact that the Epstein-Zin aggregator is neither Lipschitz nor jointly concave in all its variables.

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“…Schroder and Skiadas (1999). 23 Clearly, in order to obtain the result in Theorem 3 appropriate boundary conditions have to be imposed.…”

Section: Theorem 3 If a Classical Solution For The Robust Hjb Equatimentioning

confidence: 99%

A Review of Perturbative Approaches for Robust Optimal Portfolio Problems

Trojani

Vanini

2002

Applied Optimization

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Only a few intertemporal optimal consumption and portfolio problems in partial and general equilibrium can be solved explicitly. It is illustrated in the paper that perturbation theory is a powerful tool for deriving approximate analytical solutions for the desired optimal policies in problems where general state dynamics are admitted and a preference for robustness is present. Starting from the perturbative approach proposed recently by Kogan and Uppal it is demonstrated how robust equilibria for some formulations of a preference for robustness in the literature can be solved. A crucial requirement for this approach is the existence of a known functional form for the candidate model solutions, a condition which is not satisfied by some models of a preference for robustness. For these cases,

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Optimal Consumption and Portfolio Selection with Stochastic Differential Utility

Cited by 70 publications

References 42 publications

Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments

Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments

Consumption Investment Optimization with Epstein-Zin Utility in Incomplete Markets

A Review of Perturbative Approaches for Robust Optimal Portfolio Problems

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