Minimizing the lifetime ruin under borrowing and short-selling constraints

Haluk Yener

Scandinavian Actuarial Journal, 2014, vol. 2014, issue 6, 535-560

Abstract: In this paper, the optimal investment strategies for minimizing the probability of lifetime ruin under borrowing and short-selling constraints are found. The investment portfolio consists of multiple risky investments and a riskless investment. The investor withdraws money from the portfolio at a constant rate proportional to the portfolio value. In order to find the results, an auxiliary market is constructed, and the techniques of stochastic optimal control are used. Via this method, we show how the application of stochastic optimal control is possible for minimizing the probability of lifetime ruin problem defined under an auxiliary market.

Date: 2014
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DOI: 10.1080/03461238.2012.745448

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