Foundations of continuous-time recursive utility : differentiability and normalization of certainty equivalents

This paper relates recursive utility in continuous time to its discrete-time origins and provides a rigorous and intuitive alternative to a heuristic approach presented in [Duffie, Epstein 1992], who formally define recursive utility in continuous time via backward stochastic differential equations (stochastic differential utility). Furthermore, we show that the notion of Gâteaux differentiability of certainty equivalents used in their paper has to be replaced by a different concept. Our approach allows us to address the important issue of normalization of aggregators in non-Brownian settings. We show that normalization is always feasible if the certainty equivalent of the aggregator is of expected utility type. Conversely, we prove that in general L´evy frameworks this is essentially also necessary, i.e. aggregators that are not of expected utility type cannot be normalized in general. Besides, for these settings we clarify the relationship of our approach to stochastic differential utility and, finally, establish dynamic programming results. JEL Classifications: D81, D91, C6

Stochastic differential utility as the continuous-time limit of recursive utility

We establish a convergence theorem that shows that discrete-time recursive utility, as developed by Kreps and Porteus (1978), converges to stochastic differential utility, as introduced by Dufffie and Epstein (1992), in the continuous-time limit of vanishing grid size

Financial Deepening, Trade Openness and Economic Growth in Latin America and the Caribbean

This contribution investigates the direct and indirect causal interactions between financial deepening, trade openness and economic growth for 13 Latin American and Caribbean countries. Using a rather general approach to identify indicators for financial deepening and to detect Granger causality within a VAR/VECM framework, we find almost no evidence for the popular hypothesis of finance-led growth. Evidence of bidirectional finance-growth causality is stronger but mostly unstable in the long run. Most results indicate a demand-following or insignificant relationship between finance and growth in Latin America. This finding seems to be consistent with regard to the weakness and deficiencies of the region's financial systems. Further, there is no evidence that finance indirectly and unilaterally induces growth via the channel of trade openness. Thus, policies that prioritize financial and trade liberalization cannot be supported by this study. Instead, a holistic policy approach seems to be preferable that promotes the determinants of both real sector growth and financial development. As a result, financial factors may positively and significantly contribute to economic development in the region.Financial Markets, Economic Growth, Openness, Hsiao’s Granger Causality, Latin America and Caribbean

Consumption habits and humps : [Version 23 June 2013]

We show that the optimal consumption of an individual over the life cycle can have the hump shape (inverted U-shape) observed empirically if the preferences of the individual exhibit internal habit formation. In the absence of habit formation, an impatient individual would prefer a decreasing consumption path over life. However, because of habit formation, a high initial consumption would lead to high required consumption in the future. To cover the future required consumption, wealth is set aside, but the necessary amount decreases with age which allows consumption to increase in the early part of life. At some age, the impatience outweighs the habit concerns so that consumption starts to decrease. We derive the optimal consumption strategy in closed form, deduce sufficient conditions for the presence of a consumption hump, and characterize the age at which the hump occurs. Numerical examples illustrate our findings. We show that our model calibrates well to U.S. consumption data from the Consumer Expenditure Survey

Modulation of Human and Malarial Glucose Transporter Activity by Lipids and Small Molecules

Glucose transport is a fundamentally important process for maintenance and regulation of cellular metabolism in all kingdoms of life. Despite their high importance, detailed examination of glucose transport proteins in humans and parasites through biochemical, biophysical and structural properties was greatly hampered by the inability to express, purify and reconstitute sufficient amounts of active transporters. This dissertation describes strategies that led to the first successful expression, purification, stabilization and functional reconstitution of active insulin-responsive GLUT4 transport protein. Furthermore, the work described herein establishes a requirement of anionic and conical lipids for full activity of the mammalian glucose transporters GLUT3 and GLUT4, thereby extending the field of known membrane protein-lipid interactions to the family of structurally and functionally related human solute carriers. Because of its crucial role in parasite survival, the malarial glucose transporter PfHT has been extensively validated as drug target for different parasitic life stages in vitro and in animal models. The emergence of parasites with resistance to even the most potent existing anti-malarial drugs has made paramount the development of novel drugs that target essential pathways for parasite survival. We identified PfHT as molecular target of the antimalarial activity of the clinically used HIV inhibitor lopinavir which had been shown previously to decrease parasite viability in vitro, in vivo, and in patients. In order to find novel PfHT inhibitors with increased potency and selectivity over human orthologs, a high-throughput assay was developed that uses fluorescence as direct readout of PfHT mediated glucose transport inhibition. Validation of this approach was demonstrated by our success in identifying several verified hits in a screen of the MMV malaria box compound library. Importantly, we identified a potent PfHT inhibitor with \u3e10 fold higher selectivity for PfHT over its human orthologs. These findings have high potential for direct application in large-scale screens and new drug development. Taken together, this work provides a novel framework for ongoing efforts to directly target glucose transporters in the treatment of human disease