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Table of Contents
Preface; Acknowledgements; Contents; List of Figures; List of Tables; 1 Introduction; 1.1 Institutions, Models and Empirics; 1.2 Dynamic Programming as Solution Method; 1.3 Previous Work; 1.4 Outline and Results; 2 Forecasting and Low Frequency Movements of Asset Returns; 2.1 Introduction; 2.2 Limits on Forecasting Asset Returns; 2.3 The Use of Periodic Returns; 2.4 Conclusions; 3 Portfolio Modeling with Sustainability Constraints; 3.1 Introduction; 3.2 Mean-Variance Portfolio Models; 3.3 Description of Statistical Properties of Returns Data
3.3.1 Computing Expected Real Returns on Risky Assets3.3.2 Variance-Covariance and Correlation Matrices and Volatility of Real Returns; 3.3.3 Eigenvalue and Eigenvector Properties of the Empirical Covariance and Correlation Matrix; 3.4 Estimation Results of the Portfolio Models; 3.5 Conclusion; Appendix; Forecasting the Monthly Consumer Price Inflation; Capital Allocation Line and Efficient Frontiers; 4 Dynamic Saving and Portfolio Decisions-Theory; 4.1 Introduction; 4.2 The Model with One Asset and Constant Returns; 4.2.1 Numerical Results for the Benchmark Model
4.2.2 Variation of Risk Aversion, Returns and Discount Rate4.3 Dynamic Consumption and Portfolio Decisions: Two Assets and Time Varying Returns; 4.3.1 The Model with Time Varying Returns; 4.3.2 Numerical Results on a Benchmark Case; 4.3.3 Variation of Risk Aversion; 4.3.4 Variation of Returns; 4.3.5 Variation of Time Horizon; 4.4 A Stochastic Model with Mean Reversion in Returns; 4.5 Conclusions; Appendix; The Solution to the Dynamic Decision Problem with One Asset; 5 Asset Accumulation with Estimated Low Frequency Movements of Asset Returns; 5.1 Introduction; 5.2 The Literature and Results
5.3 The Dynamic Programming Solution5.4 Varying Risk Aversion Across Investors; 5.5 Varying Time Horizon Across Investors; 5.6 Some Conclusions; 6 Asset Accumulation and Portfolio Decisions with Time Varying Asset Returns and Labor Income ; 6.1 Introduction; 6.2 Literature and Results; 6.3 Business Cycles, Asset Returns and Labor Income; 6.4 Dynamic Decisions on Asset Accumulation; 6.5 Wealth Disparities; 6.6 Conclusions; 7 Continuous and Discrete Time Modeling; 7.1 Introduction; 7.2 Literature and Results; 7.3 Discrete-Time Approximation; 7.3.1 Euler Method; 7.3.2 Milstein Method
7.3.3 New Local Linearization Method7.3.4 Equivalence of the Euler and NLL Predictors; 7.4 Empirical Results on Modeling Short Term Interest Rates; 7.4.1 Specification Test; 7.4.1.1 Autocorrelation Checking; 7.4.1.2 Testing Normality; 7.4.2 Results of Estimating CKLS Model; 7.5 Searching for New Models; 7.5.1 Improvement in the Continuous-Time Framework; 7.5.2 Modeling Autocorrelations in the Estimated Noise; 7.5.3 Modeling Thick-Tails in the Estimated Noise; 7.5.4 Model Identification; 7.5.5 Results; 7.6 Conclusions; Appendix; Tables: Estimation Results
3.3.1 Computing Expected Real Returns on Risky Assets3.3.2 Variance-Covariance and Correlation Matrices and Volatility of Real Returns; 3.3.3 Eigenvalue and Eigenvector Properties of the Empirical Covariance and Correlation Matrix; 3.4 Estimation Results of the Portfolio Models; 3.5 Conclusion; Appendix; Forecasting the Monthly Consumer Price Inflation; Capital Allocation Line and Efficient Frontiers; 4 Dynamic Saving and Portfolio Decisions-Theory; 4.1 Introduction; 4.2 The Model with One Asset and Constant Returns; 4.2.1 Numerical Results for the Benchmark Model
4.2.2 Variation of Risk Aversion, Returns and Discount Rate4.3 Dynamic Consumption and Portfolio Decisions: Two Assets and Time Varying Returns; 4.3.1 The Model with Time Varying Returns; 4.3.2 Numerical Results on a Benchmark Case; 4.3.3 Variation of Risk Aversion; 4.3.4 Variation of Returns; 4.3.5 Variation of Time Horizon; 4.4 A Stochastic Model with Mean Reversion in Returns; 4.5 Conclusions; Appendix; The Solution to the Dynamic Decision Problem with One Asset; 5 Asset Accumulation with Estimated Low Frequency Movements of Asset Returns; 5.1 Introduction; 5.2 The Literature and Results
5.3 The Dynamic Programming Solution5.4 Varying Risk Aversion Across Investors; 5.5 Varying Time Horizon Across Investors; 5.6 Some Conclusions; 6 Asset Accumulation and Portfolio Decisions with Time Varying Asset Returns and Labor Income ; 6.1 Introduction; 6.2 Literature and Results; 6.3 Business Cycles, Asset Returns and Labor Income; 6.4 Dynamic Decisions on Asset Accumulation; 6.5 Wealth Disparities; 6.6 Conclusions; 7 Continuous and Discrete Time Modeling; 7.1 Introduction; 7.2 Literature and Results; 7.3 Discrete-Time Approximation; 7.3.1 Euler Method; 7.3.2 Milstein Method
7.3.3 New Local Linearization Method7.3.4 Equivalence of the Euler and NLL Predictors; 7.4 Empirical Results on Modeling Short Term Interest Rates; 7.4.1 Specification Test; 7.4.1.1 Autocorrelation Checking; 7.4.1.2 Testing Normality; 7.4.2 Results of Estimating CKLS Model; 7.5 Searching for New Models; 7.5.1 Improvement in the Continuous-Time Framework; 7.5.2 Modeling Autocorrelations in the Estimated Noise; 7.5.3 Modeling Thick-Tails in the Estimated Noise; 7.5.4 Model Identification; 7.5.5 Results; 7.6 Conclusions; Appendix; Tables: Estimation Results