Scale-invariant asset pricing and consumption/portfolio choice with general attitudes toward risk and uncertainty
This paper develops familiar themes of consumption-based asset pricing and consumption/portfolio choice, but with generalized homothetic recursive preferences, allowing essentially any homothetic risk/uncertainty averse conditional certainty equivalent, and possibly constrained asset markets, as long as positions are scaleable with wealth. Pricing restrictions in terms of consumption growth and market returns are derived, and a simple recursive method for solving the corresponding optimal consumption/portfolio choice problem is established.
Skiadas, Constantinos. 2013. Scale-invariant asset pricing and consumption/portfolio choice with general attitudes toward risk and uncertainty. Mathematics and Financial Economics. 7(4): 431-456.