Comparison of Optimal Portfolios With and Without Subsistence Consumption Constraints
- Authors
- Shin, Yong Hyun; Lim, Byung Hwa
- Issue Date
- Jan-2011
- Publisher
- Pergamon Press Ltd.
- Citation
- Nonlinear Analysis, Theory, Methods and Applications, v.74, no.1, pp 50 - 58
- Pages
- 9
- Journal Title
- Nonlinear Analysis, Theory, Methods and Applications
- Volume
- 74
- Number
- 1
- Start Page
- 50
- End Page
- 58
- URI
- https://scholarworks.sookmyung.ac.kr/handle/2020.sw.sookmyung/12704
- DOI
- 10.1016/j.na.2010.08.014
- ISSN
- 0362-546X
1873-5215
- Abstract
- We present the effects of the subsistence consumption constraints on a portfolio selection problem for an agent who is free to choose when to retire with a constant relative risk aversion (CRRA) utility function. By comparing the previous studies with and without the constraints expressed by the minimum consumption requirement, the changes of a retirement wealth level and the amount of money invested in the risky asset are derived explicitly. As a result, the subsistence constraints always lead to lower retirement wealth level but do not always induce less investment in the risky asset. This implies that even though the agent who has a restriction on consumption retires with lower wealth level, she invests more money near the retirement when her risk aversion lies inside a certain range.
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