Efficient Intertemporal Allocation of Risk and Return

Efficient Intertemporal Allocation of Risk and Return

By Robert Wilson, Eiichiro Kazumori
2009Working Paper No. 2055

Efficient allocation of a stochastic stream of financial income is characterized by an explicit stochastic differential equation for the case that each agent has stationary preferences and the probability law of the stochastic process is known. The initial condition is affected by which efficient allocation is chosen, but subsequent evolution is determined solely by agents' impatience and risk aversion.

Keywords
efficient allocation of risk, risk, economic theory