2018/07/03 by Wing Fung Chong, Chong, Wing Fung, Gechun Liang +1
Economics, Econometrics and Finance · #Economic theories and models #Capital Investment and Risk Analysis #Climate Change Policy and Economics
paper · pdf · doi:10.48550/arxiv.1807.01186
This paper studies robust forward investment and consumption preferences within a zero-volatility context. Different from previous works, we consider an incomplete financial market model due to general investment portfolio constraints. We provide a new PDE characterization and a novel semi-explicit saddle-point construction of forward preferences and optimal strategies. We further present a more detailed construction of forward preferences and optimal strategies under constant relative risk aversion (CRRA). Key findings emphasize the necessity of a specific relationship between the initial investment preference and the forward consumption preference, indicating a long-term decreasing trend in forward consumption preference behavior.