Journal of Economic Theory , Vol. 151, pp. 528-550

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 Duffie and Epstein (1992), in the continuous-time limit of vanishing grid size.