Co-jumps and recursive preferences in portfolio choices

Abstract This paper investigates a multivariate, dynamic, continuous-time optimal consumption and portfolio allocation problem when the investor faces recursive utilities. The economy we are considering is described through both diffusion discontinuities in dynamics. We derive an approximated closed-form solution to rules by exploiting standard dynamic programming techniques. Our findings manifold. First, obtain weights, inversely proportional volatility. Second, show that co-jumps frequency intensity play crucial role, as they considerably limit potential losses investors’ wealth. Third, prove jumps precision reinforce effect of price, further reducing allocation. Finally, highlight how may influence choices regarding intertemporal consumption.