Asset Pricing with Stochastic Habit Formation英文文献资料.docVIP

Journal of Mathematical Finance, 2012, 2, 175-180 /10.4236/jmf.2012.22018 Published Online May 2012 (http://www.SciRP.org/journal/jmf) Asset Pricing with Stochastic Habit Formation Masao Nakagawa The Institute of Economic Research, Kyoto University, Kyoto, Japan Email: m-nakagawa@kier.kyoto-u.ac.jp Received January 23, 2012; revised March 7, 2012; accepted March 18, 2012 ABSTRACT This paper examines optimal consumption/portfolio choices under stochastic habit formation in which it is uncertain how deep consumers would become in the habit of consuming in future. By extending Shroder and Skiadas [1] to sto- chastic habit formation, the optimization problem with stochastic habit forming preferences is transformed into that with simple time-additive preferences. Optimal portfolios are composed of the tangency portfolio and habit hedging portfolio. Resulting risk premia are characterized by consumption beta, which is proportionate to the covariance with consumption changes, and habit beta, defined by using the covariance with habit. Keywords: Asset Pricing; Stochastic Habit Formation 1. Introduction As my main conclusions, it is shown that 1) by ex- tending [1], the optimization problem with stochastic habit forming preferences can be transformed into that with simple time-additive preferences; that 2) consum- ers’ optimal portfolios are composed of tangency portfo- lio, which has minimum variance of returns, and habit hedging portfolio, duplicating stochastic habit formation; and that 3) risk premia of asset returns are characterized by consumption beta, which is proportionate to the co- variance with consumption changes, and habit beta, de- fined by using the covariance with fluctuations in the habitual subsistence level. The key relation underlying these results is the optimal condition that the marginal utility of wealth equals that of contemporaneous utility of consumption plus the