Journal of the Korean Society for Industrial and Applied Mathematics

Korean Society for Industrial and Applied Mathematics (한국산업응용수학회)
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OPTIMAL CONSUMPTION AND SLUTSKY EQUATION WITH EPSTEIN-ZIN TYPE PREFERENCE

  • Ahn, Se-Ryoong (Department of Business Administration, Ajou University) ;
  • Koo, Hyeng-Keun (Department of Financial Engineering, Ajou University)
  • Received : 2012.03.19
  • Accepted : 2012.03.28
  • Published : 2012.06.25
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Abstract

In this paper we conduct comparative statics for optimal consumption and portfolio selection of an agent who has a utility function of Epstein and Zin type. We derive the Slutsky equations and decompose the total effects of changes into the substitution effects and the income effects. We identify the role of the elasticity of intertemporal substitution and the coefficient of relative risk aversion.

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References

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