Optimal investment with insurable background risk and nonlinear portfolio allocation frictions

被引：0
|
作者：
Ramirez, Hugo E. [1 ]
Serrano, Rafael [1 ]
机构：
[1] Univ Rosario, Calle 12C 6-49, Bogota, Colombia
来源：
APPLIED MATHEMATICS AND COMPUTATION | 2025年 / 485卷
关键词：
Portfolio allocation; Insurance demand; Background risk; Jump-diffusions; CRRA utility; Hamilton-Jacobi-Bellman equation; Differential rates; Separation theorem; CONSUMPTION CHOICES; DUALITY; COSTS; MODEL;
D O I：
10.1016/j.amc.2024.129023
中图分类号：
O29 [应用数学];
学科分类号：
070104 ;
摘要：
We study optimal investment and insurance demand in a continuous-time model that combines risky assets with an insurable background risk. This risk takes the form of a jump-diffusion process that reduces the return rate of the agent's 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 HJB equation to find the optimal conditions for the agent to fully, partially, or totally insure against the background risk. We consider different types of friction, such as differential borrowing and lending rates. We also show a mutual-fund separation result and provide numerical examples.
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页数：20
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