Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/71153 
Year of Publication: 
2012
Series/Report no.: 
CFS Working Paper No. 2012/07
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
Abstract: 
This paper studies constrained portfolio problems that may involve constraints on the probability or the expected size of a shortfall of wealth or consumption. Our first contribution is that we solve the problems by dynamic programming, which is in contrast to the existing literature that applies the martingale method. More precisely, we construct the non-separable value function by formalizing the optimal constrained terminal wealth to be a (conjectured) contingent claim on the optimal non-constrained terminal wealth. This is relevant by itself, but also opens up the opportunity to derive new solutions to constrained problems. As a second contribution, we thus derive new results for non-strict constraints on the shortfall of inter-mediate wealth and/or consumption.
Subjects: 
Finance
Markov Processes
Consumption-investment Problems
Utility Maximization
Bellman Equations
JEL: 
G11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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