Efficient Intertemporal Allocation of Risk and Return
Stanford Graduate School of Business Research Paper Series No. 2055
14 Pages Posted: 14 Jul 2010
Date Written: April 1, 2009
Efficient allocation of a stochastic stream of financial income is characterized by an explicit stochastic differential equation for the case that each agent has stationary preferences and the probability law of the stochastic process is known. The initial condition is affected by which efficient allocation is chosen, but subsequent evolution is determined solely by agents' impatience and risk aversion.
Keywords: efficient allocation of risk, economic theory, risk
JEL Classification: D53, D61, D70, D86, D91
Suggested Citation: Suggested Citation