Optimal consumption and portfolio choice with ambiguity
Portfolio Management
2014-01-09 v1 Risk Management
Abstract
We consider optimal consumption and portfolio choice in the presence of Knightian uncertainty in continuous-time. We embed the problem into the new framework of stochastic calculus for such settings, dealing in particular with the issue of non-equivalent multiple priors. We solve the problem completely by identifying the worst--case measure. Our setup also allows to consider interest rate uncertainty; we show that under some robust parameter constellations, the investor optimally puts all his wealth into the asset market, and does not save or borrow at all.
Keywords
Cite
@article{arxiv.1401.1639,
title = {Optimal consumption and portfolio choice with ambiguity},
author = {Qian Lin and Frank Riedel},
journal= {arXiv preprint arXiv:1401.1639},
year = {2014}
}