Download this Paper Open PDF in Browser

Lifetime Investment and Consumption with Recursive Preferences and Small Transaction Costs

39 Pages Posted: 18 May 2017  

Yaroslav Melnyk

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Johannes Muhle‐Karbe

University of Michigan at Ann Arbor

Frank Thomas Seifried

University of Trier

Date Written: May 18, 2017

Abstract

This article investigates the effects of small proportional transaction costs on lifetime consumption and portfolio decisions. The extant literature has focused on agents with additive utility; here, we argue that this is essentially without loss of generality at the leading order for small costs. To shed light on the effects of alternative risk preferences, we in turn perform a higher-order analysis for the archetype of non-additive preferences – the isoelastic recursive utilities proposed by Epstein and Zin.

Keywords: lifetime investment and consumption, recursive utility, Epstein-Zin, transaction costs, asymptotics

JEL Classification: G11, D91, C61

Suggested Citation

Melnyk, Yaroslav and Muhle‐Karbe, Johannes and Seifried, Frank Thomas, Lifetime Investment and Consumption with Recursive Preferences and Small Transaction Costs (May 18, 2017). Available at SSRN: https://ssrn.com/abstract=2970469 or http://dx.doi.org/10.2139/ssrn.2970469

Yaroslav Melnyk (Contact Author)

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900
Switzerland

Johannes Muhle‐Karbe

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Frank Seifried

University of Trier ( email )

Department IV - Mathematics
Universitätsring 19
Trier, 54296
Germany

HOME PAGE: http://sites.google.com/site/seifriedfinance/

Paper statistics

Downloads
62
Rank
305,423
Abstract Views
356