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MAPA20190015189
Liang, Xiaoqing
Minimizing the probability of lifetime ruin: two riskless assets with transaction costs
Xiaoqing Liang, Virginia R. Young
We compute the optimal investment strategy for an individual who wishes to minimize her probability of lifetime ruin. The financial market in which she invests consists of two riskless assets. One riskless asset is a money market, and she consumes from that account. The other riskless asset is a bond that earns a higher interest rate than the money market, but buying and selling bonds are subject to proportional transaction costs. We consider the following three cases. (1) The individual is allowed to borrow from both riskless assets; ruin occurs if total imputed wealth reaches zero. Under the optimal strategy, the individual does not sell short the bond. However, she might wish to borrow from the money market to fund her consumption. Thus, in the next two cases, we seek to limit borrowing from that account. (2) We assume that the individual pays a higher rate to borrow than she earns on the money market. (3) The individual is not allowed to borrow from either asset; ruin occurs if both the money market and bond accounts reach zero wealth. We prove that the borrowing rate in case (2) acts as a parameter connecting the two seemingly unrelated cases (1) and (3).
MAPA20080611613
Modelos probabílisticos
MAPA20080580377
Esperanza de vida
MAPA20080602437
Matemática del seguro
MAPA20080579258
Cálculo actuarial
MAPA20100039786
Young, Virginia R.
MAP20077000420
02/09/2019 Volumen 49 Número 3 - septiembre 2019 , p. 847-883
0515-0361
Astin bulletin
Belgium : ASTIN and AFIR Sections of the International Actuarial Association