Optimal multi-period consumption and investment with short-sale constraints

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Arisoy Y. E., Salih A., Pinar M. C.

FINANCE RESEARCH LETTERS, vol.11, no.1, pp.16-24, 2014 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 11 Issue: 1
  • Publication Date: 2014
  • Doi Number: 10.1016/j.frl.2013.05.007
  • Journal Name: FINANCE RESEARCH LETTERS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.16-24
  • Keywords: Options, Optimization, Short-sales, Consumption-based CAPM, STOCK RETURNS, CAPITAL-MARKET, ASSET PRICES, EQUILIBRIUM, STRATEGIES, VOLATILITY, OPINION, OPTIONS
  • TED University Affiliated: No

Abstract

This article examines agents' consumption-investment problem in a multi-period pure exchange economy where agents are constrained with the short-sale of state-dependent risky contingent claims. In equilibrum, agents hold options written on aggregate consumption in their optimal portfolios. Furthermore, under the specific case of quadratic utility, the optimal risk-sharing rule derived for the pricing agent leads to a multifactor conditional consumption-based capital asset pricing model (CCAPM), where excess option returns appear as factors. (C) 2013 Elsevier Inc. All rights reserved.