Portfolio Choice and Asset Pricing with Nontraded Assets
37 Pages Posted: 25 Jun 2004 Last revised: 1 Aug 2022
Date Written: November 1988
Abstract
This paper examines portfolio choice and asset pricing when some assets are nontraded, for instance when a country cannot trade claims to its output on world capital markets, when a government cannot trade claims to future tax revenues, or when an individual cannot trade claims to his future wages. The close relation between portfolio choice with and implicit pricing of nontraded assets is emphasized. A variant of Cox, Ingersoll and Ross's Fundamental Valuation Equation is derived and used to interpret the optimal portfolio. Explicit solutions are presented to the portfolio and pricing problem for some special cases, including when income from the nontraded assets is a diffusion process, not spanned by traded assets, and affected by a state variable.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Pensions as Retirement Income Insurance
By Zvi Bodie
-
Inflation, Index-Linked Bonds, and Asset Allocation
By Zvi Bodie
-
Retirement Annuity Design in an Inflationary Climate
By Zvi Bodie and James E. Pesando
-
Pension Plan Integration as Insurance Against Social Security Risk
By Robert C. Merton, Zvi Bodie, ...
-
Optimal Investment Strategies for University Endowment Funds
-
By Zvi Bodie