Synopsis
Excerpt from Consumption-Porfolio Policies: An Inverse Optimal Problem
The inverse problem studied here can be viewed as a dynamic recoverability problem in financial markets with continuous trading; see Kurz (1969) and Chang (1988) for related problems. Our objective here is to recover an economic agent's preferences from the observed consumption-portfolio policy that has been specified for a given asset price process. Since our emphasis is in analyzing an individual's consumption-portfolio policy in a continuous time securities market environment, the inverse problem studied here and the solution method employed in this paper are very different from those of Kurz (1969) and Chang who study an inverse problem in the theory of optimal growth.
Cox and Leland (1982) are the first to characterize efficient consumption-portfolio policies when the asset price follows a geometric Brownian motion; also see Black Our contribution in this paper lies in giving a characterization of the efficient consumption-portfolio policies when the asset price follows a general diffusion process. Since our characterization of efficient consumption portfolio policies is derived for a general specification of the price process, we can also use the same approach to answer a related question: Can a given consumption-portfolio policy be optimal for a given utility function and some diffusion price process or for some utility function and some diffusion price process?
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Paperback. Condition: New. Print on Demand. This book presents a novel framework for analyzing the problem of optimal consumption and investment decisions in the presence of uncertain future conditions. Previous literature on this subject focused primarily on deriving optimal policies contingent on exogenous processes governing future uncertainty. This book, however, addresses the inverse problem - given an arbitrary consumption-portfolio policy, it seeks to determine necessary and sufficient conditions that must be satisfied such that the policy is an optimal solution for some economic agent with an increasing, strictly concave, time-additive, and state-independent utility function and under general specifications of the prices of risky assets. The author derives these conditions and offers an integral formula to recover the utility function that supports a given optimal policy, providing a dynamic recoverability perspective on incomplete financial markets with continuous trading. This book is a reproduction of an important historical work, digitally reconstructed using state-of-the-art technology to preserve the original format. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in the book. print-on-demand item. Seller Inventory # 9781334017841_0
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Condition: New. KlappentextrnrnExcerpt from Consumption-Porfolio Policies: An Inverse Optimal ProblemThe inverse problem studied here can be viewed as a dynamic recoverability problem in financial markets with continuous trading see Kurz (1969) and Cha. Seller Inventory # 2148104620
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