A dynamic programming approach to constrained portfolios

This paper studies constrained portfolio problems that may involve constraints on the probability or the expected size of a shortfall of wealth or consumption. Our first contribution is that we solve the problems by dyna
This paper studies constrained portfolio problems that may involve constraints on the probability or the expected size of a shortfall of wealth or consumption. Our first contribution is that we solve the problems by dynamic programming, which is in contrast to the existing literature that applies the martingale method. More precisely, we construct the non-separable value function by formalizing the optimal constrained terminal wealth to be a (conjectured) contingent claim on the optimal non-constrained terminal wealth. This is relevant by itself, but also opens up the opportunity to derive new solutions to constrained problems. As a second contribution, we thus derive new results for non-strict constraints on the shortfall of inter¬mediate wealth and/or consumption.
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Metadaten
Author:Holger Kraft, Mogens Steffensen
URN:urn:nbn:de:hebis:30:3-256567
Series (Serial Number):CFS working paper series (2012, 07)
Publisher:CFS
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Date of Publication (online):2012/07/17
Date of first Publication:2012/07/17
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2012/08/15
Tag:Bellman Equations; Consumption-investment Problems; Finance; Markov Processes; Utility Maximization
Pagenumber:56 S.
Institutes:Wirtschaftswissenschaften
Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G11 Portfolio Choice; Investment Decisions
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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