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Optimal portfolios with a positive lower bound on final wealth 

Author: Ralf Korn a
Affiliation:   a Fachbereich Mathematik, Universitaumlt Kaiserslautern, 67653 Kaiserslautern, Germany
DOI: 10.1080/14697680500167927
Publication Frequency: 8 issues per year
Published in: journal Quantitative Finance, Volume 5, Issue 3 June 2005 , pages 315 - 321
Number of References: 10
Formats available: HTML (English) : PDF (English)
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Abstract

We consider the determination of optimal portfolios under a lower bound on the final wealth. Possible applications range from capital guarantee strategies over life insurance investment where part of the benefit is a guaranteed return on capital to continuous-time mean-variance problems with a strictly positive lower bound. Our solution method consists of transforming the original problem into a portfolio problem without a positive lower bound but a transformed utility function and a modified initial wealth.
Keywords: Optimal portfolios; Lower bound; Capital guarantee; Martingale method
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