Convergence to Isoelastic Utility and Policy in
Multiperiod Portfolio Choice
Nils H. Hakansson
The Journal of Financial Economics, 1, September 1974, 201-224.
This paper considers the problem of the investor who has numerous opportunities
for revising his portfolio and whose choices are governed by a utility
function defined on 'terminal' wealth, U0(x0). Attention is
focused on the behavior of the induced utility functions of intermediate
wealth with n periods to go, Un(xn), and the associated investment
policies. Conditions under which the functions Un(xn) will
tend to isoelasticity have previously been given by Mossin and by Leland.
In this paper, the conditions for convergence are weakened further, to
the point where they appear sufficiently board to encompass perhaps most
utility functions of practical interest.
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