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John Y. Campbell, George Chacko, Jorge Rodriguez, Luis M. Viciera
NBER Working Paper No. 9547
Issued in March 2003
NBER Program(s): EFG
ME
AP
---- Abstract -----
This note derives an approximate solution to a continuous-time intertemporal portfolio and consumption choice problem. The problem is the continuous-time equivalent of the discrete-time problem studied by Campbell and Viceira (1999), in which the expected excess return on a risky asset follows an AR(1)process, while the riskless interest rate is constant. The note also shows how to obtain continuous-time parameters that are consistent with discrete-time econometric estimates. The continuous-time solution is numerically close to that of Campbell and Viceira and has the property that conservative long-term investors have a large positive intertemporal hedging demand for stocks.
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