We study the optimal multivariate intertemporal portfolio choice for a risk- and ambiguityaverse investor, who has access to stocks and derivatives markets. The stock prices follow stochastic covariance processes and the investor can have di↵erent levels of uncertainty about the di↵usion parts of the stocks and their covariance structure. We provide the solutions in closed-form, establish links between the optimal portfolio and their sources and find strong evidence that the optimal portfolio is significantly a↵ected by ambiguity aversion. Welfare analyses show that investors who ignore model uncertainty incur large losses. Further, the presence of covariance risk elucidates the role of derivatives. We show that trading derivatives can considerably improve the investors risk-reward profile and, in order to exploit the time-varying opportunity set, they can be used as hedging instruments for the otherwise inaccessible covariance risk. In this context, we confirm large welfare losses from not trading in derivatives as well as ignoring intertemporal hedging, study the impact of ambiguity in that regard, and justify the importance of including these factors in the scope of portfolio optimization.     «

We study the optimal multivariate intertemporal portfolio choice for a risk- and ambiguityaverse investor, who has access to stocks and derivatives markets. The stock prices follow stochastic covariance processes and the investor can have di↵erent levels of uncertainty about the di↵usion parts of the stocks and their covariance structure. We provide the solutions in closed-form, establish links between the optimal portfolio and their sources and find strong evidence that the optimal portfolio is...     »