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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 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 KraftGND, Mogens Steffensen
URN:urn:nbn:de:hebis:30:3-256567
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2012,7
Series (Serial Number):CFS working paper series (2012, 07)
Publisher:CFS
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2012
Year of first Publication:2012
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2012/08/15
Tag:Bellman Equations; Consumption-investment Problems; Finance; Markov Processes; Utility Maximization
Issue:Version July 17, 2012
Page Number:30
HeBIS-PPN:348140010
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht