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CONSUMPTION AND PORTFOLIO POLICIES WITH INCOMPLETE MARKETS AND SHORT-SALE CONSTRAINTS IN THE FINITE-DIMENSIONAL CASE: SOME REMARKS |
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| Authors: | Bruno Girotto Fulvio Ortu |
| Institution: | Dipartimento di Matematica Applicata alle Scienze, Economiche, Statistiche ed Attuariali "B. de Finetti," Universitèdi Trieste, Trieste, Italy;Dipartimento di Matematica Applicata alle Scienze, Economiche, Statistiche ed Attuariali "B. de Finetti," Universitàdi Trieste, Trieste, Italy Department of Economics, University of Chicago, Chicago, IL 60637 |
| Abstract: | This paper extends He and Pearson's (1991) martingale approach to the study of optimal intertemporal consumption and portfolio policies with incomplete markets and short-sale constraints to a framework in which no assumptions are made on the price process for the securities. We show how both their characterization of the budget-feasible set and duality result can be extended to account for an unbounded set II of Arrow-Debreu state prices compatible with the arbitrage-free assumption. We also supply a (fairly general) sufficient condition for II to be bounded, as required in their setting. |
| Keywords: | consumption portfolio policies martingale incomplete markets short-sale |