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Dynamic Saving and Portfolio Decisions-Theory

In: Sustainable Asset Accumulation and Dynamic Portfolio Decisions

Author

Listed:
  • Carl Chiarella

    (University of Technology)

  • Willi Semmler

    (New School for Social Research
    Bielefeld University)

  • Chih-Ying Hsiao

    (University of Technology)

  • Lebogang Mateane

    (New School for Social Research)

Abstract

In this chapter, we illustrate the use of dynamic programming (DP) and the HJB equation for a simple model. We focus on dynamic saving and asset allocation, formulated in continuous time. We first introduce a model with one asset and constant returns. Usually in the literature, the problem is formulated as consumption and asset allocation decision. In this context, the objective of the investor is then to maximize his or her welfare given by some preferences over consumption, resulting in corresponding saving rates affecting the size of the assets.

Suggested Citation

  • Carl Chiarella & Willi Semmler & Chih-Ying Hsiao & Lebogang Mateane, 2016. "Dynamic Saving and Portfolio Decisions-Theory," Dynamic Modeling and Econometrics in Economics and Finance, in: Sustainable Asset Accumulation and Dynamic Portfolio Decisions, chapter 0, pages 53-79, Springer.
    • Handle: RePEc:spr:dymchp:978-3-662-49229-1_4
    DOI: 10.1007/978-3-662-49229-1_4
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