Utility maximization under solvency constraints and unhedgeable risks
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| Publication date | 26-03-2009 |
| Number of pages | 22 |
| Publisher | Amsterdam: Department of Quantitative Economics, Universiteit van Amsterdam |
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| Abstract |
We consider the utility maximization problem for an investor who faces a solvency or risk constraint in addition to a budget constraint. The investor wishes to maximize her expected utility from terminal wealth subject to a bound on her expected solvency at maturity. We measure solvency using a solvency function applied to the terminal wealth. The motivation for our analysis is an optimal investment problem where the investor faces a random and non-hedgable liability at maturity. |
| Document type | Working paper |
| Language | English |
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