Abstract

MARTINEZ-PALACIOS, María Teresa Verónica; ORTIZ-RAMIREZ, Ambrosio  and  VENEGAS-MARTINEZ, Francisco. (Optimal Consumption and Portfolio Decisions with American-Style Asian Options in a Stochastic Dynamic General Equilibrium Model). Anál. econ. [online]. 2020, vol.35, n.89, pp.193-213.  Epub Nov 13, 2020. ISSN 2448-6655.

This work developed a dynamic stochastic general equilibrium model about the consumption and investment decisions of a representative risk averse agent, for a small and closed economy, constrained to the market risk of the assets in the portfolio with a finite time horizon of stochastic length. It is assumed that the agent has access to three assets: a stock, whose interest rate is stochastic, an option subscribed on the stock and a risk-free bond. The prices of the assets are quoted in units of the consumer good, and there are no taxes and no transaction costs for the maintenance of the portfolio. The proposed problem is useful to characterize the premium of an American-style Asian put option with floating strike as the solution of a partial differential equation.

Keywords : Stochastic optimal control; portfolio choice; American-style Asian option pricing; stochastic interest rate.

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