Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets

@inproceedings{Chacko2003DynamicCA,
title={Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets},
author={George Chacko and Luis M. Viceira},
year={2003}
}

This paper examines the optimal consumption and portfolio choice problem of long-horizon investors who have access to a riskless asset with constant return and a risky asset ("stocks") with constant expected return and time varying precision–the reciprocal of volatility. Markets are incomplete, and investors have recursive preferences defined over intermediate consumption. The paper obtains a solution to this problem which is exact for investors with unit elasticity of intertemporal… CONTINUE READING