Explicit solution to dynamic portfolio choice problem : The continuous-­‐time detour

Abstract : This paper solves the dynamic portfolio choice problem. Using an explicit solution with a power utility, we construct a bridge between a continuous and discrete VAR model to assess portfolio sen-sitivities. We find, from a well analyzed example that the optimal allocation to stocks is particularly sensitive to Sharpe ratio. Our quantitative analysis highlights that this sensitivity increases when the risk aversion decreases and/or when the time horizon increases. This finding explains the low accuracy of discrete numerical methods especially along the tails of the unconditional distribution of the state variable.
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https://hal-enpc.archives-ouvertes.fr/hal-01117787
Contributeur : Djibril Togola <>
Soumis le : mardi 24 février 2015 - 15:19:38
Dernière modification le : mercredi 4 septembre 2019 - 13:52:12
Document(s) archivé(s) le : samedi 12 septembre 2015 - 16:30:18

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François Legendre, Djibril Togola. Explicit solution to dynamic portfolio choice problem : The continuous-­‐time detour. 2015. ⟨hal-01117787v1⟩

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