Multi-objective private wealth allocation without subportfolios
AbstractAs opposed to institutional investors, individual investors typically have several investment objectives in mind. The traditional utility maximization approach is not only oversimplified but also may not be suitable for real world application. Behavioral asset allocation divides a portfolio into subportfolios, which can cause potential problems. This paper follows the Modern Portfolio Theory and introduces the practical idea of treating some goals as constraints. How this works in practice is illustrated by an example of an individual having three different objectives. This article follows the idea of Chen et al. (2006) and includes life insurance. Consumption is modeled into three parts and accommodates a reasonable basis for calculating life insurance requirements and generally integrates consumption into the investment decision. As a whole, the model provides a customized solution for the environment and complex investment goals of an individual.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 29 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/30411
Private wealth allocation; Multi-objective; CTE; Life insurance;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D10 - Microeconomics - - Household Behavior - - - General
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
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