Abstract, Classic, and Explicit Turnpikes

Guasoni, Paolo; Robertson, Scott; Xing, Hao; Kardaras, Constantinos

doi:10.2139/ssrn.1784439

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Abstract, Classic, and Explicit Turnpikes

Boston U. School of Management Research Paper No. 2011-5

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; University of Bologna - Department of Statistics

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 payoffs 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 finite-horizon optimal portfolios as a long-run myopic portfolio defined 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: Suggested Citation

Guasoni, Paolo and 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