IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v176y2010i1p389-40810.1007-s10479-008-0467-2.html
   My bibliography  Save this article

Optimal investment strategy to minimize occupation time

Author

Listed:
  • Erhan Bayraktar
  • Virginia Young

Abstract

We find the optimal investment strategy to minimize the expected time that an individual’s wealth stays below zero, the so-called occupation time. The individual consumes at a constant rate and invests in a Black-Scholes financial market consisting of one riskless and one risky asset, with the risky asset’s price process following a geometric Brownian motion. We also consider an extension of this problem by penalizing the occupation time for the degree to which wealth is negative. Copyright Springer Science+Business Media, LLC 2010

Suggested Citation

  • Erhan Bayraktar & Virginia Young, 2010. "Optimal investment strategy to minimize occupation time," Annals of Operations Research, Springer, vol. 176(1), pages 389-408, April.
    • Handle: RePEc:spr:annopr:v:176:y:2010:i:1:p:389-408:10.1007/s10479-008-0467-2
    DOI: 10.1007/s10479-008-0467-2
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10479-008-0467-2
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10479-008-0467-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Moshe A. Milevsky & Kristen S. Moore & Virginia R. Young, 2006. "Asset Allocation And Annuity‐Purchase Strategies To Minimize The Probability Of Financial Ruin," Mathematical Finance, Wiley Blackwell, vol. 16(4), pages 647-671, October.
    2. Erhan Bayraktar & Virginia Young, 2007. "Correspondence between lifetime minimum wealth and utility of consumption," Finance and Stochastics, Springer, vol. 11(2), pages 213-236, April.
    3. Kristen Moore & Virginia Young, 2006. "Optimal and Simple, Nearly Optimal Rules for Minimizing the Probability Of Financial Ruin in Retirement," North American Actuarial Journal, Taylor & Francis Journals, vol. 10(4), pages 145-161.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lkabous, Mohamed Amine & Wang, Zijia, 2023. "On the area in the red of Lévy risk processes and related quantities," Insurance: Mathematics and Economics, Elsevier, vol. 111(C), pages 257-278.
    2. Kohatsu-Higa, A. & Makhlouf, A. & Ngo, H.L., 2014. "Approximations of non-smooth integral type functionals of one dimensional diffusion processes," Stochastic Processes and their Applications, Elsevier, vol. 124(5), pages 1881-1909.
    3. Moawia Alghalith, 2012. "A New Stopping Time Model: A Solution to a Free-Boundary Problem," Journal of Optimization Theory and Applications, Springer, vol. 152(1), pages 265-270, January.
    4. Erhan Bayraktar & Asaf Cohen, 2015. "Risk Sensitive Control of the Lifetime Ruin Problem," Papers 1503.05769, arXiv.org, revised Jul 2016.
    5. Zeddouk, Fadoua & Devolder, Pierre, 2022. "Pricing and hedging of longevity basis risk through securitization," LIDAM Discussion Papers ISBA 2022038, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    6. Cohen, Asaf & Young, Virginia R., 2016. "Minimizing lifetime poverty with a penalty for bankruptcy," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 156-167.
    7. Angoshtari, Bahman & Bayraktar, Erhan & Young, Virginia R., 2015. "Minimizing the expected lifetime spent in drawdown under proportional consumption," Finance Research Letters, Elsevier, vol. 15(C), pages 106-114.
    8. Iftikhar Ul Haq & Tanzeela Shaheen & Wajid Ali & Hamza Toor & Tapan Senapati & Francesco Pilla & Sarbast Moslem, 2023. "Novel Fermatean Fuzzy Aczel–Alsina Model for Investment Strategy Selection," Mathematics, MDPI, vol. 11(14), pages 1-23, July.
    9. Xiaoqing Liang & Virginia R. Young, 2020. "Minimizing the Probability of Lifetime Exponential Parisian Ruin," Journal of Optimization Theory and Applications, Springer, vol. 184(3), pages 1036-1064, March.
    10. Asaf Cohen & Virginia R. Young, 2015. "Minimizing Lifetime Poverty with a Penalty for Bankruptcy," Papers 1509.01694, arXiv.org.
    11. Alghalith, Moawia, 2013. "The interaction among production, hedging and investment decisions," Economic Modelling, Elsevier, vol. 30(C), pages 193-195.
    12. Moawia Alghalith, 2012. "New stochastic calculus," Papers 1211.5819, arXiv.org.
    13. Alghalith, Moawia, 2012. "Forward dynamic utility functions: A new model and new results," European Journal of Operational Research, Elsevier, vol. 223(3), pages 842-845.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bayraktar, Erhan & Hu, Xueying & Young, Virginia R., 2011. "Minimizing the probability of lifetime ruin under stochastic volatility," Insurance: Mathematics and Economics, Elsevier, vol. 49(2), pages 194-206, September.
    2. Angoshtari, Bahman & Bayraktar, Erhan & Young, Virginia R., 2016. "Minimizing the probability of lifetime drawdown under constant consumption," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 210-223.
    3. Cohen, Asaf & Young, Virginia R., 2016. "Minimizing lifetime poverty with a penalty for bankruptcy," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 156-167.
    4. Erhan Bayraktar & Virginia Young, 2011. "Proving regularity of the minimal probability of ruin via a game of stopping and control," Finance and Stochastics, Springer, vol. 15(4), pages 785-818, December.
    5. Wang, Ting & Young, Virginia R., 2012. "Maximizing the utility of consumption with commutable life annuities," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 352-369.
    6. Horneff, Wolfram J. & Maurer, Raimond H. & Stamos, Michael Z., 2008. "Life-cycle asset allocation with annuity markets," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3590-3612, November.
    7. Marina Di Giacinto & Bjarne Højgaard & Elena Vigna, 2010. "Optimal time of annuitization in the decumulation phase of a defined contribution pension scheme," Working Papers 2010-08, Universita' di Cassino, Dipartimento di Economia e Giurisprudenza.
    8. Bayraktar, Erhan & Young, Virginia R., 2016. "Optimally investing to reach a bequest goal," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 1-10.
    9. Wolfram J. Horneff & Raimond H. Maurer, 2008. "Deferred Annuities and Strategic Asset Allocation," Working Papers wp178, University of Michigan, Michigan Retirement Research Center.
    10. Xiaoqing Liang & Virginia R. Young, 2020. "Minimizing the Probability of Lifetime Exponential Parisian Ruin," Journal of Optimization Theory and Applications, Springer, vol. 184(3), pages 1036-1064, March.
    11. Wolfram J. Horneff & Raimond H. Maurer & Olivia S. Mitchel & Michael Z. Stamos, 2008. "Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts," Working Papers wp177, University of Michigan, Michigan Retirement Research Center.
    12. Wolfram J. Horneff & Raimond H. Maurer & Olivia S. Mitchell & Michael Z. Stamos, 2008. "Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts," NBER Working Papers 14055, National Bureau of Economic Research, Inc.
    13. Erhan Bayraktar & Virginia Young, 2008. "Minimizing the Probability of Ruin When Consumption is Ratcheted," North American Actuarial Journal, Taylor & Francis Journals, vol. 12(4), pages 428-442.
    14. Bahman Angoshtari & Erhan Bayraktar & Virginia R. Young, 2015. "Optimal Investment to Minimize the Probability of Drawdown," Papers 1506.00166, arXiv.org, revised Feb 2016.
    15. Bayraktar, Erhan & Young, Virginia R., 2009. "Minimizing the lifetime shortfall or shortfall at death," Insurance: Mathematics and Economics, Elsevier, vol. 44(3), pages 447-458, June.
    16. Wang, Ting & Young, Virginia R., 2012. "Optimal commutable annuities to minimize the probability of lifetime ruin," Insurance: Mathematics and Economics, Elsevier, vol. 50(1), pages 200-216.
    17. Habib, F. & Huang, H. & Mauskopf, A. & Nikolic, B. & Salisbury, T.S., 2020. "Optimal allocation to Deferred Income Annuities," Insurance: Mathematics and Economics, Elsevier, vol. 90(C), pages 94-104.
    18. Christopher J. Rook, 2015. "Optimal Equity Glidepaths in Retirement," Papers 1506.08400, arXiv.org.
    19. Wolfram J. Horneff & Raimond H. Maurer & Michael Z. Stamos, 2008. "Optimal Gradual Annuitization: Quantifying the Costs of Switching to Annuities," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 1019-1038, December.
    20. Erhan Bayraktar & Yuchong Zhang, 2014. "Minimizing the Probability of Lifetime Ruin Under Ambiguity Aversion," Papers 1402.1809, arXiv.org, revised Nov 2014.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:176:y:2010:i:1:p:389-408:10.1007/s10479-008-0467-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.