Publication type: Working paper – expertise – study
Title: Hedging goals
Authors: Krabichler, Thomas
Wunsch, Marcus
et. al: No
Extent: 28
Issue Date: 2021
Publisher / Ed. Institution: arXiv
Other identifiers: arXiv:2105.07915
Language: English
Subject (DDC): 332.6: Investment
Abstract: Goal-based investing is concerned with reaching a monetary investment goal by a given finite deadline, which differs from mean-variance optimization in modern portfolio theory. In this article, we expand the close connection between goal-based investing and option hedging that was originally discovered in [Bro99b] by allowing for varying degrees of investor risk aversion using lower partial moments of different orders. Moreover, we show that maximizing the probability of reaching the goal (quantile hedging, cf. [FL99]) and minimizing the expected shortfall (efficient hedging, cf. [FL00]) yield, in fact, the same optimal investment policy. We furthermore present an innovative and model-free approach to goal-based investing using methods of reinforcement learning. To the best of our knowledge, we offer the first algorithmic approach to goal-based investing that can find optimal solutions in the presence of transaction costs.
URI: https://arxiv.org/abs/2105.07915
https://digitalcollection.zhaw.ch/handle/11475/24319
License (according to publishing contract): Licence according to publishing contract
Departement: School of Management and Law
Organisational Unit: Institute of Wealth & Asset Management (IWA)
Appears in collections:Publikationen School of Management and Law

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