Dynamic financial planning: certainty equivalents, stochastic constraints and functional conjugate duality
Date
2005
Authors
Jefferson, T. R.
Scott, C. H.
Editor(s)
Advisor
Supervisor
Co-Advisor
Co-Supervisor
Instructor
Source Title
IIE Transactions
Print ISSN
0740-817X
Electronic ISSN
1545-8830
Publisher
Taylor & Francis
Volume
37
Issue
10
Pages
931 - 938
Language
English
Type
Journal Title
Journal ISSN
Volume Title
Series
Abstract
This paper studies portfolios under risk and stochastic constraints. Certainty equivalents combine risk aversion and exponential utility to form the objective. Budget and stochastic constraints on the account balance are used to ensure a positive net worth over time. These portfolio models are analyzed by functional conjugate duality for general distributions and by conjugate duality for the normal distribution. All the programs are convex. The duals provide insight into this approach and relate it to other stochastic and financial concepts.