The global financial crisis leads to a growing awareness of theneed for robust dynamic investment control. This study considersa consumption–investment problem for an investor with homotheticrobust utility under a quadratic security market model, in which allinflation rates, interest rates, and asset risk premiums and volatilitiesare stochastic and predictable. Homothetic robust utility is character-ized by investors’ relative risk aversion and “relative ambiguity aver-sion.” We show that the optimal portfolio is decomposed into the sumof myopic demand, intertemporal risk hedging demand, inflation riskdemand, and “intertemporal ambiguity hedging demand.” We obtaina loglinear approximate analytical solution to a nonlinear partial dif-ferential equation for the indirect utility function. The coefficients forthis solution are provided as a system of nonlinear algebraic equations.We also present an algorithm to solve this system numerically.
引用
Discussion Paper, Series E,( No. E-6), pp. 1-25
雑誌名
Discussion Paper, Series E
号
No.E-6
ページ
1 - 25
発行年
2021-01
出版者
The Institute for Economic and Business Research Faculty of Economics,Shiga University
Approximate Analytical Solution for Robust Consumption–Investment Problem under Quadratic Security Market Model
DPE6.2021jan
(393.05KB)
