Optimal multi-period consumption and investment with short-sale constraints |
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Institution: | 1. Université Paris Dauphine, DRM Finance, 75775 Paris Cedex 16, France;2. Bilkent University, 06533 Ankara, Turkey;1. Department of Finance, Bocconi University, Via Roentgen 1, 20136 Milan, Italy;2. Department of Finance and IGIER, Bocconi University, Via Roentgen 1, 20136 Milan, Italy |
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Abstract: | This article examines agents’ consumption-investment problem in a multi-period pure exchange economy where agents are constrained with the short-sale of state-dependent risky contingent claims. In equilibrum, agents hold options written on aggregate consumption in their optimal portfolios. Furthermore, under the specific case of quadratic utility, the optimal risk-sharing rule derived for the pricing agent leads to a multifactor conditional consumption-based capital asset pricing model (CCAPM), where excess option returns appear as factors. |
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Keywords: | Options Optimization Short-sales Consumption-based CAPM |
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