Portfolio turnpikes state that, as the investment horizon increases, optimal portfolios for generic utilities converge to those of isoelastic utilities. This paper proves three kinds of turnpikes. The abstract turnpike, valid in a general semimartingale setting, states that final payoffs and portfolios converge under their myopic probabilities. Diffusion models with several assets and a single state variable lead to the classic turnpike , in which optimal portfolios converge under the physical probability , and to the explicit turnpike , which identifies the limit of optimal portfolios in terms of the solution of an ergodic HJB equation.
Portfolio turnpikes state that, as the investment horizon increases, optimal portfolios for generic utilities converge to those of isoelastic utilities. This paper proves three kinds of turnpikes. In a general semimartingale setting, the abstract turnpike states that optimal final payoffs and portfolios converge under their myopic probabilities. In diffusion models with several assets and a single state variable , the classic turnpike demonstrates that optimal portfolios converge under the physical probability ; meanwhile the explicit turnpike identifies the limit of finite-horizon optimal portfolios as a long-run myopic portfolio defined in terms of the solution of an ergodic HJB equation.
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