Date: Wednesday, November 11, 2015
Location: 1360 East Hall (4:00 PM to 5:00 PM)
Title: Predictable Investment Preferences
Abstract: We propose a new class of dynamic random investment preferences, called predictable utilities. These preferences are a cross between the classical expected utility model of Merton and the recent “Forward Investment Preference” model introduced by Musiela and Zariphopoulou, in the sense that the risk preferences are stochastic and updated by the forward approach at the end of each period while, within each period, the investor faces a classical expected utility maximization problem. In the binomial market setting, the existence of predictable utilities is established through a constructive argument, which relies on solvability of the inverse of the classical Merton investment problem, i.e. when the value function is given and the terminal utility function is to be found. As an application, we consider the problem of optimal investment in a market where asset returns can only be reliably modeled for a short time ahead.
Joint work with Thaleia Zariphopoulou and Xunyu Zhou.
Files: 3497_UM_Nov2015.pdf
Speaker: Bahman Angoshtari
Institution: UM
Event Organizer: Erhan Bayraktar erhan@umich.edu
