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Personalized goal-based investing via multi-stage stochastic goal programming

Author

Listed:
  • Woo Chang Kim
  • Do-Gyun Kwon
  • Yongjae Lee
  • Jang Ho Kim
  • Changle Lin

Abstract

In this paper, we propose a goal-based investment model that is suitable for personalized wealth management. The model only requires a few intuitive inputs such as size of wealth, investment amount, and consumption goals from individual investors. In particular, a priority level can be assigned to each consumption goal and the model provides a holistic solution based on a sequential approach starting with the highest priority. This allows strict prioritization by maximizing the probability of achieving higher priority goals that are not affected by goals with lower priorities. Furthermore, the proposed model is formulated as a linear program that efficiently finds the optimal financial plan. With its simplicity, flexibility, and computational efficiency, the proposed goal-based investment model provides a new framework for automated investment management services.

Suggested Citation

  • Woo Chang Kim & Do-Gyun Kwon & Yongjae Lee & Jang Ho Kim & Changle Lin, 2020. "Personalized goal-based investing via multi-stage stochastic goal programming," Quantitative Finance, Taylor & Francis Journals, vol. 20(3), pages 515-526, March.
    • Handle: RePEc:taf:quantf:v:20:y:2020:i:3:p:515-526
    DOI: 10.1080/14697688.2019.1662079
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    Citations

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    Cited by:

    1. Lorenzo Reus & Guillermo Alexander Sepúlveda-Hurtado, 2023. "Foreign exchange trading and management with the stochastic dual dynamic programming method," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-38, December.
    2. Jang Ho Kim & Yongjae Lee & Woo Chang Kim & Frank J. Fabozzi, 2022. "Goal-based investing based on multi-stage robust portfolio optimization," Annals of Operations Research, Springer, vol. 313(2), pages 1141-1158, June.
    3. Jang Ho Kim & Woo Chang Kim & Frank J. Fabozzi, 2021. "Sparse factor model based on trend filtering," Annals of Operations Research, Springer, vol. 306(1), pages 321-342, November.
    4. Zack Jourdan & J. Ken. Corley & Randall Valentine & Arthur M. Tran, 2023. "Fintech: A content analysis of the finance and information systems literature," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-21, December.
    5. Das, Sanjiv R. & Ostrov, Daniel & Radhakrishnan, Anand & Srivastav, Deep, 2022. "Dynamic optimization for multi-goals wealth management," Journal of Banking & Finance, Elsevier, vol. 140(C).

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