Abstract, Classic, and Explicit Turnpikes

34 Pages Posted: 18 Mar 2011 Last revised: 9 Feb 2012

See all articles by Paolo Guasoni

Paolo Guasoni

Boston University - Department of Mathematics and Statistics; Dublin City University - School of Mathematical Sciences

Scott Robertson

Questrom School of Business, Boston University

Hao Xing

Boston University - Questrom School of Business

Constantinos Kardaras

Carnegie Mellon University

Date Written: March 12, 2011

Abstract

Portfolio turnpikes state that, as the investment horizon increases, optimal portfolios for generic utilities converge to those of isoelastic utilities. This paper proves three kinds of turnpikes. In a general semimartingale setting, the abstract turnpike states that optimal final payo ffs and portfolios converge under their myopic probabilities. In diffusion models with several assets and a single state variable, the classic turnpike demonstrates that optimal portfolios converge under the physical probability; meanwhile the explicit turnpike identifies the limit of fi nite-horizon optimal portfolios as a long-run myopic portfolio de fined in terms of the solution of an ergodic HJB equation.

Keywords: Portfolio Choice, Incomplete Markets, Long-Run, Utility Functions, Turnpikes

JEL Classification: G11

Suggested Citation

Guasoni, Paolo and Robertson, Scott and Xing, Hao and Kardaras, Constantinos, Abstract, Classic, and Explicit Turnpikes (March 12, 2011). Boston U. School of Management Research Paper No. 2011-5, Available at SSRN: https://ssrn.com/abstract=1784439 or http://dx.doi.org/10.2139/ssrn.1784439

Paolo Guasoni (Contact Author)

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

HOME PAGE: http://www.guasoni.com

Scott Robertson

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Hao Xing

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Constantinos Kardaras

Carnegie Mellon University

Pittsburgh, PA 15213-3890
United States

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