## Dynamic consumption and portfolio choice with stochastic volatility in incomplete markets (2003)

Citations: | 98 - 7 self |

### BibTeX

@MISC{Chacko03dynamicconsumption,

author = {George Chacko and Luis M. Viceira},

title = {Dynamic consumption and portfolio choice with stochastic volatility in incomplete markets },

year = {2003}

}

### Years of Citing Articles

### OpenURL

### Abstract

### Citations

1500 | The Econometrics of Financial Markets - Campbell, Lo, et al. - 1997 |

1465 |
A theory of the term structure of interest rates
- Cox, Ingersoll, et al.
- 1985
(Show Context)
Citation Context ...owing dynamics for instantaneous precision: dyt = κ(θ − yt)dt + σ √ ytdWy. (2) Precision follows a mean-reverting, square-root process with reversion parameter κ> 0, withE[yt] =θ and Var(yt) =σ2θ/2κ (=-=Cox, Ingersoll, and Ross, 1985-=-). In order to satisfy standard integrability conditions, we assume that 2κθ > σ2 . The stochastic process for precision implies a mean-reverting process for the instantaneous volatility vt ≡ 1/yt. Ap... |

954 | Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework - Epstein, Zin - 1989 |

952 | A closed-form solution for options with stochastic volatility with applications to bond and currency options - Heston - 1993 |

932 | Optimum Consumption and Portfolio Rules in a Continuous Time Model - Merton - 1971 |

793 | On the relation between the expected value and the volatility of the nominal excess return on stocks - GLOSTEN, JAGANNATHAN, et al. - 1993 |

766 | An Intertemporal Capital Asset Pricing Model - Merton - 1973 |

688 |
Lifetime Portfolio Selection under Uncertainty: The Continuous– Time Case
- Merton
- 1969
(Show Context)
Citation Context ...of these roots ensures that the limit of the solution as γ → 1 equals the well-known solution in the special case of log utility (γ = ψ =1), for which A = B =0,andthevalue function is simply log(Xt) (=-=Merton, 1969-=-, 1971, 1973). Convergence to the known solution is obtained by selecting the root associated with the positive root of the discriminant of the quadratic equation (15) when γ>1, and the negative root ... |

454 | Why does stock market volatility change over time - Schwert - 1989 |

445 | Bayesian Analysis of Stochastic Volatility Models - Jacquier, Polson, et al. - 1994 |

417 | Stock returns and the term structure - Campbell - 1987 |

356 | Have Individual Stocks Become More Volatile? An Exploration of Idiosyncratic Risk - Campbell, Lettau, et al. - 2001 |

351 | Investing for the Long Run when Returns are Predictable
- Barberis
- 2000
(Show Context)
Citation Context ...a (2002) has found that 1intertemporal hedging is quantitatively important in light of the observed predictable variation in both interest rates and equity premia in the US (Balduzzi and Lynch 1997, =-=Barberis 2000-=-, Brandt 1998, Brennan, Schwartz and Lagnado 1996, 1997, Campbell and Viceira 1999, 2001, Campbell, Chan and Viceira 2002). This paper explores systematically optimal portfolio choice with volatility ... |

335 | Optimal consumption and portfolio policies when asset prices follow a diusion process - Cox, Huang - 1989 |

334 | Lifetime portfolio selection by dynamic stochastic programming - Samuelson - 1969 |

278 | Multivariate Stochastic Variance Models - Harvey, Ruiz, et al. - 1994 |

266 |
Consumption and portfolio decisions when expected returns are time varying”, Quarterly
- Campbell, Viceira
- 1999
(Show Context)
Citation Context ...rtant in light of the observed predictable variation in both interest rates and equity premia in the US (Balduzzi and Lynch 1997, Barberis 2000, Brandt 1998, Brennan, Schwartz and Lagnado 1996, 1997, =-=Campbell and Viceira 1999-=-, 2001, Campbell, Chan and Viceira 2002). This paper explores systematically optimal portfolio choice with volatility risk in a continuous-time setting. We consider the optimal consumption and investm... |

255 | Stock Price Distributions with Stochastic Volatility: An Analytic Approach - Stein, Stein - 1991 |

251 |
No news is good news: An asymmetric model of changing volatility in stock returns
- Campbell, Hentschel
- 1992
(Show Context)
Citation Context ...k return volatility is serially correlated, and shocks to volatility are negatively correlated with unexpected stock returns. Changes in volatility are persistent (French, Schwert and Stambaugh 1987, =-=Campbell and Hentschel 1992-=-). Large negative stock returns tend to be associated with increases in volatility that persist over long periods of time. Stock return volatility appears to be correlated across markets over the worl... |

228 | Market Volatility - Shiller - 1989 |

213 | The world price of covariance risk - Harvey - 1991 |

196 | Strategic asset allocation - Brennan, Schwartz, et al. - 1997 |

194 | Intertemporal Asset Pricing without Consumption Data. American Economic Review 83:487–512 - Campbell - 1993 |

191 | Strategic Asset Allocation – Portfolio Choice for Long-Term Investors - Campbell, Viceira - 2003 |

191 | Time-varying conditional covariances in tests of asset pricing models - Harvey |

181 | Pricing foreign currency options with stochastic volatility - Melino, Turnbull - 1990 |

170 | An empirical investigation of continuous-time equity return models - Andersen, Benzoni, et al. - 2002 |

150 | F.(1992), “ARCH Modeling in Finance - Bollerslev, Chou, et al. |

138 | Estimating portfolio and consumption choice: A conditional euler equations approach - Brandt - 1999 |

134 | Optimal portfolio choice for long-horizon investors with nontradeable labor income - Viceira - 2001 |

127 | Meteor Showers or Heat Waves? Heteroskedastic IntraDaily Volatility - Engle, Ito, et al. - 1990 |

119 | Portfolio selection in stochastic environments”, Working paper, Graduate - Liu - 1998 |

113 | Transaction Costs and Predictability: Some Utility Cost Calculations
- Balduzzi, Lynch
- 1999
(Show Context)
Citation Context ...ed in Campbell and Viceira (2002) has found that 1intertemporal hedging is quantitatively important in light of the observed predictable variation in both interest rates and equity premia in the US (=-=Balduzzi and Lynch 1997-=-, Barberis 2000, Brandt 1998, Brennan, Schwartz and Lagnado 1996, 1997, Campbell and Viceira 1999, 2001, Campbell, Chan and Viceira 2002). This paper explores systematically optimal portfolio choice w... |

112 | A Multivariate Model of Strategic Asset Allocation - Campbell, Chan, et al. - 1999 |

107 | Portfolio and consumption decisions under mean-reverting returns: An exact solution for complete markets
- Wachter
- 2002
(Show Context)
Citation Context ...time-varying investment opportunities. This research has provided solutions in settings where markets are incomplete, but constraining utility to be defined over terminal wealth (Kim and Omberg 1996, =-=Wachter 2002-=-); and in settings where investors have utility over intermediate consumption, but constraining markets to be complete (Brennan and Xia 2001, Wachter 2000, Schroder and Skiadas 1999, and Fisher and Gi... |

100 | Estimation of affine asset pricing models using the empirical characteristic function - Singleton - 2001 |

99 | Estimation of stochastic volatility models with diagnostics - Gallant, Hsieh, et al. - 1997 |

98 | Variable Selection for Portfolio Choice - Ait-Sahalia, Brandt - 2001 |

87 | Stochastic Volatility in Asset Prices: Estimation with Simulated Maximum Likelihood - Danielsson - 1994 |

68 | Optimal Consumption and Portfolio Selection with Stochastic Differential Utility
- Schroder, Skiadas
- 1999
(Show Context)
Citation Context ...al wealth (Kim and Omberg 1996, Wachter 2002); and in settings where investors have utility over intermediate consumption, but constraining markets to be complete (Brennan and Xia 2001, Wachter 2000, =-=Schroder and Skiadas 1999-=-, and Fisher and Gilles 1998). This paper provides an exact solution for the case of utility defined over intermediate consumption which does not require assuming that markets are complete. This exact... |

59 | Spectral GMM estimation of continuous-time processes - Chacko, Viceira - 2003 |

41 |
International asset allocation with time-varying correlations. Working paper
- Ang, Bekaert
- 1999
(Show Context)
Citation Context ...rns tend to be associated with increases in volatility that persist over long periods of time. Stock return volatility appears to be correlated across markets over the world (Engle, Ito and Lin 1990, =-=Ang and Bekaert 1999-=-). While there is an abundant literature exploring the pricing of assets when volatility is time varying, there is not much research exploring optimal dynamic portfolio choice with volatility risk. Th... |

40 | Predictability and Transaction Costs: The Impact on Rebalancing Rules and Behavior - Balduzzi, Lynch - 2000 |

20 | Stock Market Mean Reversion and the Optimal Equity Allocation of a Long-Lived Investor,” Working Paper - Campbell, Cocco, et al. - 1998 |

15 | Interest Rates: Reinterpreting the Time Series Evidence - Mankiw, “Consumption - 1989 |

14 | 2002), “Efficient Estimation of the Continuous Time Stochastic Volatility Model via the Empirical Characteristic Function - Jiang, Knight |

13 | A Comparison of Numerical and Analytical Approximate Solutions to an Intertemporal Consumption Choice Problem - Campbell, Koo - 1997 |

4 | The Use of Treasury Bill Futures - Brennan, Schwartz, et al. - 1996 |

4 | Consumption and asset prices with recursive preferences, Working
- Fisher, Gilles
- 1999
(Show Context)
Citation Context ... Wachter 2002); and in settings where investors have utility over intermediate consumption, but constraining markets to be complete (Brennan and Xia 2001, Wachter 2000, Schroder and Skiadas 1999, and =-=Fisher and Gilles 1998-=-). This paper provides an exact solution for the case of utility defined over intermediate consumption which does not require assuming that markets are complete. This exact solution requires though th... |

3 | Incentives to Learn - Michael, Miguel, et al. - 2007 |