Abstract
We study continuous-time consumption and portfolio choice in the presence of Knightian uncertainty about interest rates. We develop the stochastic model that involves singular priors and analyze optimal behavior. When there is sufficiently large uncertainty about interest rates, the agent invests in the asset market only and abstains from the bond market.
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This work is supported by the National Natural Science Foundation of China (No. 11971364), and the German Research Foundation (DFG) via Grant Ri-1128-7-1 and the CRC 1283.
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Lin, Q., Riedel, F. Optimal consumption and portfolio choice with ambiguous interest rates and volatility. Econ Theory 71, 1189–1202 (2021). https://doi.org/10.1007/s00199-020-01306-9
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DOI: https://doi.org/10.1007/s00199-020-01306-9