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.
| 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): |  Deutsches Urheberrecht |
