Portfolio decision with a quadratic utility and inflation risk
Abstract This paper considers a portfolio selection problem with a quadratic utility of consumption, which is symmetric with respect to a bliss point. At bliss point, the utility function has its maximum value and further consumption lowers the utility. In the presence of inflation risk, we introduc...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
SpringerOpen
2018-10-01
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| Series: | Advances in Difference Equations |
| Subjects: | |
| Online Access: | http://link.springer.com/article/10.1186/s13662-018-1834-1 |
| Summary: | Abstract This paper considers a portfolio selection problem with a quadratic utility of consumption, which is symmetric with respect to a bliss point. At bliss point, the utility function has its maximum value and further consumption lowers the utility. In the presence of inflation risk, we introduce an inflation-linked index bond to manage the inflation risk and derive explicit expressions for the optimal consumption and portfolios by applying duality method. Based on quantitative results, we see that inflation-linked index bond plays an important role in choosing consumption and portfolio rules. |
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| ISSN: | 1687-1847 |