Long-Term Portfolio Choice Given Uncertain Personal Savings

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Long-Term Portfolio Choice Given Uncertain Personal Savings

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dc.contributor.author Franke, Guenter en_US
dc.contributor.author Peterson, Sandra en_US
dc.contributor.author Stapleton, Richard C. en_US
dc.date.accessioned 2009-02-04T10:24:52Z
dc.date.available 2009-02-04T10:24:52Z
dc.date.issued 2004-06-15T00:00:00Z en_US
dc.identifier.uri http://hdl.handle.net/10398/6795
dc.description.abstract Investors choosing a portfolio strategy, in order to secure a pension at a future date for example, are faced with many uncertainties. One major uncertainty is the amount by which their pension fund will be supplemented by personal savings from a variety of sources such as life insurance contracts, bequests, or property sales. Over long periods of time these uncertainties are likely to be large and difficult to hedge, and hence may have a significant effect on the dynamic portfolio strategy. Drawing on the results of previous literature on the reaction of investors to non-unhedgeable background risk, and on the theory of stochastic dynamic programming, this article derives optimal strategies for investors maximising the expected utility of terminal wealth, where this wealth consists of the value of a pension fund plus accumulated personal savings. Numerical results, assuming that the market portfolio and the expectation of personal savings follow (possibly) correlated geometric Brownian motions, are derived to illustrate the effects of the size and uncertainty of the personal savings, as well as the effect of the resolution of the uncertainty in them over time. The computation uses a new technique for implementing the stochastic dynamic programming. This involves a binomial approximation, in two dimensions, which ensures that the computations are feasible for relatively long-term problems. en_US
dc.format.extent 59 s. en_US
dc.language eng en_US
dc.relation.ispartofseries LEFIC Working paper;2002-19 en_US
dc.subject.other kep en_US
dc.title Long-Term Portfolio Choice Given Uncertain Personal Savings en_US
dc.type wp en_US
dc.accessionstatus modt04jun15 mielmo en_US
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Center for Law, Economics and Financial Institutions at CBS
dc.contributor.departmentshort LEFIC en_US
dc.contributor.departmentuk Center for Law, Economics and Financial Institutions at CBS
dc.contributor.departmentukshort LEFIC
dc.idnumber x656409311 en_US
dc.publisher.city København en_US
dc.publisher.year 2003 en_US


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