Abstract

GAVIRA DURON, Nora  and  VENEGAS MARTINEZ, Francisco. Optimal Consumption and Portfolio Decisions: an Arrow-Debreu State Princes Approach. Contad. Adm [online]. 2011, n.234, pp.151-172. ISSN 0186-1042.

This research develops, under the assumption of complete markets, a stochastic model that explains the decision making process of a rational consumer-investor selecting a portfolio in a market risk environment subject to his budget constraint. The proposed model is developed in the framework of expected utility of von Neumann-Morgenstern type and state prices of Arrow-Debreu type in an infinite planning horizon. The main results are: 1) the proportion that the individual allocates his wealth to the risky asset holding is constant, and 2) the optimal consumption strategy that the agent follows is consuming always the same proportion of his wealth.

Keywords : Consumer economics; contingent pricing; portfolio choice; investment decisions.

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