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A note on a dynamic goal-based wealth management problem

Author

Listed:
  • Denault, Michel
  • Simonato, Jean-Guy

Abstract

This short note suggests two improvements for solving the goal-based wealth management problem proposed by Das, Ostrov, Radhakrishnan and Srivastav (2020). The first suggestion smoothes and improves the convergence of the approximate solutions towards the underlying, continuous solution either by using analytic solutions at the penultimate time point or by adjusting the wealth grid. The second suggestion pertains to fast matrix products and is purely computational but has a large impact on the time required to solve the problem. We also propose a more consistent approximation for the calculation of the return parameters.

Suggested Citation

  • Denault, Michel & Simonato, Jean-Guy, 2022. "A note on a dynamic goal-based wealth management problem," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004001
    DOI: 10.1016/j.frl.2021.102404
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    References listed on IDEAS

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    1. Sanjiv R. Das & Daniel Ostrov & Anand Radhakrishnan & Deep Srivastav, 2020. "Dynamic portfolio allocation in goals-based wealth management," Computational Management Science, Springer, vol. 17(4), pages 613-640, December.
    2. Jean-Guy Simonato, 2016. "A Simplified Quadrature Approach for Computing Bermudan Option Prices," International Review of Finance, International Review of Finance Ltd., vol. 16(4), pages 647-658, December.
    3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    4. Broadie, Mark & Detemple, Jerome, 1996. "American Option Valuation: New Bounds, Approximations, and a Comparison of Existing Methods," The Review of Financial Studies, Society for Financial Studies, vol. 9(4), pages 1211-1250.
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