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Pré-Publication, Document De Travail Année : 2015

Explicit solution to dynamic portfolio choice problem : The continuous-­‐time detour

Résumé

This paper solves the dynamic portfolio choice problem. Using an explicit solution with a power utility, we construct a bridge between a continuous and discrete VAR model to assess portfolio sen-sitivities. We find, from a well analyzed example that the optimal allocation to stocks is particularly sensitive to Sharpe ratio. Our quantitative analysis highlights that this sensitivity increases when the risk aversion decreases and/or when the time horizon increases. This finding explains the low accuracy of discrete numerical methods especially along the tails of the unconditional distribution of the state variable.
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Dates et versions

hal-01117787 , version 1 (24-02-2015)
hal-01117787 , version 2 (06-07-2015)

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François Legendre, Djibril Togola. Explicit solution to dynamic portfolio choice problem : The continuous-­‐time detour. 2015. ⟨hal-01117787v1⟩
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