Many investors do not know with certainty when their portfolio will be liquidated.
Université de Nice-Sophia Antipolis
Université d'Evry Val d'Essonne
Professor of Finance and Scientific Director of the EDHEC Riskand Asset Management Research Centre
Should their portfolio selection be influenced by the uncertainty of exit time? In order to answer this question, we consider a suitable extension of the familiar optimal investment problem of Merton (1971), where we allow the conditional distribution function of an agent's time horizon to be stochastic and correlated to returns on risky securities. In contrast to existing literature, which has focused on an independent time horizon, we show that the portfolio decision is affected.
|Type :||Working paper|
|Date :||le 07/05/2007|
|Pôle de recherche||Finance|