Ítem
Acceso Abierto
Optimal investment with insurable background risk and nonlinear portfolio allocation frictions
| dc.contributor.gruplac | Grupo de investigaciones. Facultad de Economía. Universidad del Rosario | |
| dc.creator | Ramírez, H | |
| dc.creator | Serrano Perdomo, Rafael Antonio | |
| dc.date.accessioned | 2023-03-13T12:41:24Z | |
| dc.date.available | 2023-03-13T12:41:24Z | |
| dc.date.created | 2023-03-09 | |
| dc.date.issued | 2023-03-07 | |
| dc.description.abstract | We study investment and insurance demand decisions for an agent in a theoretical continuous-time expected utility maximization model that combines risky assets with an (exogenous) insurable background risk. This risk takes the form of a jump-diffusion process with negative jumps in the return rate of the (self-financed) wealth. The main distinctive feature of our model is that the agent’s decision on portfolio choice and insurance demand causes nonlinear friction in the dynamics of the wealth process. We use the dynamic programming approach to find optimality conditions under which the agent assumes the insurable risk entirely, or partially, or purchases total insurance against it. In particular, we consider differential and piece-wise linear portfolio allocation frictions, with differential borrowing and lending rates as our most emblematic example. Finally, we present a mutual-fund separation result and illustrate our results with several numerical examples when the adverse jump risk has Beta distribution. | |
| dc.format.extent | 26 pp | |
| dc.format.mimetype | application/pdf | |
| dc.identifier.doi | https://doi.org/10.48713/10336_38218 | |
| dc.identifier.uri | https://repository.urosario.edu.co/handle/10336/38218 | |
| dc.language.iso | eng | |
| dc.publisher | Universidad del Rosario | |
| dc.publisher.department | Facultad de Economía | |
| dc.relation.uri | https://ideas.repec.org/p/col/000092/020658.html | |
| dc.rights | Attribution-NonCommercial-ShareAlike 4.0 International | * |
| dc.rights.accesRights | info:eu-repo/semantics/openAccess | |
| dc.rights.acceso | Abierto (Texto Completo) | |
| dc.rights.uri | http://creativecommons.org/licenses/by-nc-sa/4.0/ | * |
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| dc.source.instname | instname:Universidad del Rosario | |
| dc.source.reponame | reponame:Repositorio Institucional EdocUR | |
| dc.subject.keyword | Portfolio allocation | |
| dc.subject.keyword | Insurance demand | |
| dc.subject.keyword | CRRA utility | |
| dc.subject.keyword | Background risk | |
| dc.subject.keyword | Jump-diffusions | |
| dc.subject.keyword | Dynamic programming | |
| dc.subject.keyword | Differential rates | |
| dc.subject.keyword | Fund separation Theorem | |
| dc.title | Optimal investment with insurable background risk and nonlinear portfolio allocation frictions | |
| dc.type | workingPaper | |
| dc.type.hasVersion | info:eu-repo/semantics/draft | |
| dc.type.spa | Documento de Trabajo |
