Minimizing the Expected Lifetime Spent in Drawdown under Proportional Consumption

Bahman Angoshtari, Erhan Bayraktar and Virginia R. Young

Papers from arXiv.org

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.

Date: 2015-08, Revised 2015-08
New Economics Papers: this item is included in nep-ger
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Journal Article: Minimizing the expected lifetime spent in drawdown under proportional consumption (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1508.01914

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