Minimizing lifetime poverty with a penalty for bankruptcy

DOI10.1016/J.INSMATHECO.2016.05.013MaRDI QIDQ343989zbMATH OpenOpenAlexFDO

Authors Asaf Cohen, Virginia R. Young

Publication date 21 November 2016

Published in Insurance Mathematics \& Economics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1509.01694

zbMATH Keywords

occupation timeruinstochastic controloptimal investmentpoverty

Mathematics Subject Classification ID

Portfolio theory (91G10) Optimal stochastic control (93E20)

Abstract: We provide investment advice for an individual who wishes to minimize her lifetime poverty, with a penalty for bankruptcy or ruin. We measure poverty via a non-negative, non-increasing function of (running) wealth. Thus, the lower wealth falls and the longer wealth stays low, the greater the penalty. This paper generalizes the problems of minimizing the probability of lifetime ruin and minimizing expected lifetime occupation, with the poverty function serving as a bridge between the two. To illustrate our model, we compute the optimal investment strategies for a specific poverty function and two consumption functions, and we prove some interesting properties of those investment strategies.

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Cites work

• scientific article; zbMATH DE number 1869269 (Why is no real title available?)
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Cited in

(2)

• Bankruptcy in long-term investments
• Calibrating Gompertz in reverse: what is your longevity-risk-adjusted global age?

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