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The Exact Solution of Multi-period Portfolio Choice Problem with Exponential Utility

  • Taras Bodnar
  • Nestor ParolyaEmail author
  • Wolfgang Schmid
Conference paper
Part of the Operations Research Proceedings book series (ORP)

Abstract

In the current paper we derive the exact analytical solution of the multi-period portfolio choice problem for an exponential utility function. It is assumed that the asset returns depend on predictable variables and that the joint random process of the asset returns follows a vector autoregression. We prove that the optimal portfolio weights depend on the covariance matrices of the next two periods and the conditional mean vector of the next period. The case without predictable variables and the case of independent asset returns are partial cases of our solution.

Keywords

Optimal Portfolio Risky Asset Asset Return Portfolio Weight Absolute Risk Aversion 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.University of StockholmStockholmSweden
  2. 2.Leibniz University HannoverHannoverGermany
  3. 3.European University ViadrinaFrankfurtGermany

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