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Maximizing Utility of Consumption Subject to a Constraint on the Probability of Lifetime Ruin

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  • Erhan Bayraktar
  • Virginia R. Young

Abstract

In this note, we explicitly solve the problem of maximizing utility of consumption (until the minimum of bankruptcy and the time of death) with a constraint on the probability of lifetime ruin, which can be interpreted as a risk measure on the whole path of the wealth process.

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File URL: http://arxiv.org/pdf/1206.6268
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Paper provided by arXiv.org in its series Papers with number 1206.6268.

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Date of creation: Jun 2012
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Publication status: Published in Finance and Research Letters, (2008), 5 (4), 204-212
Handle: RePEc:arx:papers:1206.6268

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  1. Erhan Bayraktar & Virginia Young, 2007. "Correspondence between lifetime minimum wealth and utility of consumption," Finance and Stochastics, Springer, Springer, vol. 11(2), pages 213-236, April.
  2. Suleyman Basak & Alex Shapiro, . "Value-at-Risk Based Risk Management: Optimal Policies and Asset Prices," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 6-99, Wharton School Rodney L. White Center for Financial Research.
  3. Patrick Cheridito & Freddy Delbaen & Michael Kupper, 2005. "Coherent and convex monetary risk measures for unbounded càdlàg processes," Finance and Stochastics, Springer, Springer, vol. 9(3), pages 369-387, 07.
  4. Phelim Boyle & Weidong Tian, 2007. "Portfolio Management With Constraints," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 17(3), pages 319-343.
  5. Bayraktar, Erhan & Young, Virginia R., 2007. "Minimizing the probability of lifetime ruin under borrowing constraints," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 196-221, July.
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