Journal of the Korean Society for Industrial and Applied Mathematics

Korean Society for Industrial and Applied Mathematics (한국산업응용수학회)
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THE EFFECT OF INFLATION RISK AND SUBSISTENCE CONSTRAINTS ON PORTFOLIO CHOICE

  • Lim, Byung Hwa (Graduate School of Financial Engineering, The Univ. of Suwon)
  • Received : 2013.01.23
  • Accepted : 2013.03.06
  • Published : 2013.06.25
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Abstract

The optimal portfolio selection problem under inflation risk and subsistence constraints is considered. There are index bonds to invest in financial market and it helps to hedge the inflation risk. By applying the martingale method, the optimal consumption rate and the optimal portfolios are obtained explicitly. Furthermore, the quantitative effect of inflation risk and subsistence constraints on the optimal polices are also described.

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References

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