Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods

We show that an agent who does not consider the impact of jumps in the return process of risky assets will make suboptimal decisions, not only regarding the fraction of wealth

When default losses have a large weight in the risk of bank portfolios, default-free bank projects are a more efficient substitute for risky assets than the storage technology.

Theorem 5.1 asserts that a risk averse agent will invest in the risky asset or portfolio only if the expected return on the risky asset exceeds the risk free rate.. On the other hand,

In a standard portfolio choice between a risky and a safe asset, we study the effect of imposing premia and penalties conditional on the realized return of the portfolio meeting a

In particular, for two risky assets and one risk-free asset case, we con…rm our earlier theoretical result [30], that under uncertainty aversion the total holdings of risky assets as

III. Portfolio of one risky asset and one risk-free asset.. Suppose a risky portfolio, P, consists of different risky assets, which are hold in fixed proportions. In this case, we

good liquidity state, investors can trade the risk free bond and the risky asset at no cost.. In the event of liquidity dry-up, the stock market completely freezes

The total portfolio which invests w ∗ in the risky portfolio and 1 − w ∗ in the risk-free asset will result in the optimal portfolio which has an expected return and standard