Constant market price of risk investment

ID: constant-market-price-of-risk-investment

When the market price of risk is constant and nonzero spot volatility gives access to the driving Brownian motion, changes in volatility only rescale the dollar holding needed for fixed Brownian portfolio exposures. With unrestricted holdings and constant interest and discount rates, the CRRA utility value is consequently independent of the factor state. Zero volatility requires separate treatment.

New to topics? Read the docs here!