Minimizing the Expected Lifetime Spent in Drawdown under Proportional Consumption
Portfolio Management
2015-08-25 v3 Mathematical Finance
Risk Management
Abstract
We determine the optimal amount to invest in a Black-Scholes financial market for an individual who consumes at a rate equal to a constant proportion of her wealth and who wishes to minimize the expected time that her wealth spends in drawdown during her lifetime. Drawdown occurs when wealth is less than some fixed proportion of maximum wealth. We compare the optimal investment strategy with those for three related goal-seeking problems and learn that the individual is myopic in her investing behavior, as expected from other goal-seeking research.
Cite
@article{arxiv.1508.01914,
title = {Minimizing the Expected Lifetime Spent in Drawdown under Proportional Consumption},
author = {Bahman Angoshtari and Erhan Bayraktar and Virginia R. Young},
journal= {arXiv preprint arXiv:1508.01914},
year = {2015}
}
Comments
This paper is to appear in Finance Research Letters