IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/19313.html
   My bibliography  Save this paper

General closed-form solutions to the dynamic optimization problem in incomplete markets

Author

Listed:
  • Moawia, Alghalith

Abstract

In this paper, we provide general closed-form solutions to the incomplete-market random-coefficient dynamic optimization problem without the restrictive assumption of exponential or HARA utility function. Moreover, we explicitly express the optimal portfolio as a function of the optimal consumption and show the impact of optimal consumption on the optimal portfolio.

Suggested Citation

  • Moawia, Alghalith, 2009. "General closed-form solutions to the dynamic optimization problem in incomplete markets," MPRA Paper 19313, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:19313
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/19313/1/MPRA_paper_19313.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/21950/1/MPRA_paper_21950.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jaksa Cvitanic & Fernando Zapatero, 2004. "Introduction to the Economics and Mathematics of Financial Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532654, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Suleyman Basak & Georgy Chabakauri, 2012. "Dynamic Hedging in Incomplete Markets: A Simple Solution," The Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1845-1896.
    2. Chung-Han Hsieh & Xin-Yu Wang, 2023. "Robust Trading in a Generalized Lattice Market," Papers 2310.11023, arXiv.org.
    3. Moawia Alghalith, 2012. "New methods of estimating volatility and returns," Journal of Asset Management, Palgrave Macmillan, vol. 13(1), pages 1-4, February.
    4. Tamás Nepusz & Tamás Vicsek, 2013. "Hierarchical Self-Organization of Non-Cooperating Individuals," PLOS ONE, Public Library of Science, vol. 8(12), pages 1-9, December.
    5. Cvitanic, Jaksa & Lazrak, Ali & Wang, Tan, 2008. "Implications of the Sharpe ratio as a performance measure in multi-period settings," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1622-1649, May.
    6. Mehrdoust, Farshid & Noorani, Idin & Hamdi, Abdelouahed, 2023. "Two-factor Heston model equipped with regime-switching: American option pricing and model calibration by Levenberg–Marquardt optimization algorithm," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 204(C), pages 660-678.
    7. , Aisdl, 2014. "Nhập môn toán tài chính," OSF Preprints mu8th, Center for Open Science.
    8. Katharina Finke & Jost H. Heckemeyer & Timo Reister & Christoph Spengel, 2013. "Impact of Tax-Rate Cut cum Base-Broadening Reforms on Heterogeneous Firms: Learning from the German Tax Reform of 2008," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(1), pages 72-114, March.
    9. Metodi TRAYKOV & Miglena TRENCHEVA & Radoslav MAVREVSKI & Anton STOILOV & Ivan TRENCHEV, 2016. "Using Partial Differential Equations For Pricing Of Goods And Services," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 63(2), pages 291-298, July.
    10. Alghalith, Moawia, 2010. "New methods of estimating stochastic volatility and the stock return," MPRA Paper 20303, University Library of Munich, Germany.
    11. Dietmar Leisen & Eckhard Platen, 2017. "Investing for the Long Run," Papers 1705.03929, arXiv.org.
    12. Ben-Zhang Yang & Xin-Jiang He & Song-Ping Zhu, 2020. "Continuous time mean-variance-utility portfolio problem and its equilibrium strategy," Papers 2005.06782, arXiv.org, revised Nov 2020.
    13. Abeba Nigussie Turi & Josep Domingo-Ferrer & David Sánchez & Dritan Osmani, 2017. "A co-utility approach to the mesh economy: the crowd-based business model," Review of Managerial Science, Springer, vol. 11(2), pages 411-442, March.
    14. Alghalith, Moawia, 2012. "The impact of background risk," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(24), pages 6506-6508.
    15. Kraft, Holger & Steffensen, Mogens, 2012. "A dynamic programming approach to constrained portfolios," CFS Working Paper Series 2012/07, Center for Financial Studies (CFS).
    16. Kang, Woo-Young & Poshakwale, Sunil, 2019. "A new approach to optimal capital allocation for RORAC maximization in banks," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 153-165.
    17. repec:cte:idrepe:id-13-02 is not listed on IDEAS
    18. repec:dau:papers:123456789/5374 is not listed on IDEAS
    19. Lei Shi, 2010. "Portfolio Analysis and Equilibrium Asset Pricing with Heterogeneous Beliefs," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 9, July-Dece.
    20. Agostino Capponi & Martin Larsson, 2011. "Default and Systemic Risk in Equilibrium," Papers 1108.1133, arXiv.org, revised Dec 2011.
    21. Lei Shi, 2010. "Portfolio Analysis and Equilibrium Asset Pricing with Heterogeneous Beliefs," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2010, January-A.
    22. Alvarez, Sergio & Larkin, Sherry L. & Ropicki, Andrew, 2017. "Optimizing provision of ecosystem services using modern portfolio theory," Ecosystem Services, Elsevier, vol. 27(PA), pages 25-37.

    More about this item

    Keywords

    portfolio; incomplete markets; stochastic; dynamic; investment; consumption;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:19313. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.