Investment, income, incompleteness

The utility-maximizing consumption and investment strategy of an individual investor receiving an unspanned labor income stream seems impossible to find in closed form and very dificult to find using numerical solution t
The utility-maximizing consumption and investment strategy of an individual investor receiving an unspanned labor income stream seems impossible to find in closed form and very dificult to find using numerical solution techniques. We suggest an easy procedure for finding a specific, simple, and admissible consumption and investment strategy, which is near-optimal in the sense that the wealthequivalent loss compared to the unknown optimal strategy is very small. We first explain and implement the strategy in a simple setting with constant interest rates, a single risky asset, and an exogenously given income stream, but we also show that the success of the strategy is robust to changes in parameter values, to the introduction of stochastic interest rates, and to endogenous labor supply decisions. JEL-Classification: G11
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Metadaten
Author:Björn Bick, Holger Kraft, Claus Munk
URN:urn:nbn:de:hebis:30-65776
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (202)
Document Type:Working Paper
Language:English
Date of Publication (online):2009/04/30
Year of first Publication:2009
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2009/04/30
Tag:artificially completed markets ; incomplete markets ; labor income ; optimal consumption and investment ; welfare loss
HeBIS PPN:213869853
Institutes:Wirtschaftswissenschaften
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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