Optimal consumption and portfolio choice with ambiguity and anticipation
This paper, adopting the recursive multiple-priors utility, studies the optimal consumption and portfolio choice in a Merton-style model with anticipation when there is a difference between ambiguity and risk. The fundamental issue is what the effects of ambiguity and anticipation on the investor's behavior are. In the case of a logarithmic felicity function, the paper also shows that no hedging demand arises that is affected by both ambiguity and anticipation. Finally, the optimal portfolio is derived in terms of Malliavin derivatives and stochastic integrals. (C) 2006 Elsevier Inc. All rights reserved.
optimal consumption and portfolio ambiguity anticipation recursive multiple-priors utility malliavin derivatives enlargement of filtrations