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Long term optimal investment in matrix valued factor models

Author

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  • Robertson, Scott
  • Xing, Hao

Abstract

Long horizon optimal investment problems are studied in a factor model with matrix valued state variables. Explicit parameter restrictions are obtained under which, for an isoelastic investor, the finite horizon value function and optimal strategy converge to their long-run counterparts as the investment horizon approaches infinity. Additionally, portfolio turnpikes are obtained in which finite horizon optimal strategies for general utility functions converge to the long-run optimal strategy for isoelastic utility. By using results on large time behavior of semi-linear partial differential equations, our analysis extends, to a non-affine setting, affine models where the Wishart process drives investment opportunities.

Suggested Citation

  • Robertson, Scott & Xing, Hao, 2017. "Long term optimal investment in matrix valued factor models," LSE Research Online Documents on Economics 69520, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:69520
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    File URL: http://eprints.lse.ac.uk/69520/
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    References listed on IDEAS

    as
    1. George Chacko & Luis M. Viceira, 2005. "Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1369-1402.
    2. Andrea Buraschi & Paolo Porchia & Fabio Trojani, 2010. "Correlation Risk and Optimal Portfolio Choice," Journal of Finance, American Finance Association, vol. 65(1), pages 393-420, February.
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    Cited by:

    1. Baojun Bian & Harry Zheng, 2018. "Turnpike Property and Convergence Rate for an Investment and Consumption Model," Papers 1808.04265, arXiv.org.
    2. Zixin Feng & Dejian Tian, 2021. "Optimal consumption and portfolio selection with Epstein-Zin utility under general constraints," Papers 2111.09032, arXiv.org, revised May 2023.
    3. Hyungbin Park & Heejun Yeo, 2022. "Dynamic and static fund separations and their stability for long-term optimal investments," Papers 2212.00391, arXiv.org, revised Mar 2023.
    4. Wang, Hang & Hu, Zhijun, 2020. "Optimal consumption and portfolio decision with stochastic covariance in incomplete markets," Chaos, Solitons & Fractals, Elsevier, vol. 138(C).

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    More about this item

    Keywords

    Portfolio choice; Long-run; Risk sensitive control; Portfolio turnpike; Wishart process.;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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