This paper applies the Martingale method proposed by Cox and Huang to find optimal wealth and optimal hedging strategies in the Black-Scholes-Vasicek economy. It starts with a review of the general solution of optimal wealth by the Martingale method, and then apply it to a power utility function. We investigate optimal hedging under three benchmark scenarios including a cash, a stock, and an inflation-indexed bond benchmark. We analyse optimal portfolio choices when inflation-indexed bonds are traded in complete markets and not traded in incomplete markets. The outcomes suggest that optimal wealth and hedging highly depend on the volatilities of benchmarks and the degree of risk aversion of investors.

Netspar, Network for Studies on Pensions, Aging and Retirement, is een denktank en kennisnetwerk. Netspar is gericht op een goed geïnformeerd pensioendebat.

MEER OVER NETSPAR


Missie en strategie           •           Netwerk           •           Organisatie           •          Podcasts
Board Brief            •            Werkprogramma 2023-2027           •           Onderzoeksagenda

OVER NETSPAR

Onze partners

B20160708_university of groningen
B20160615_pggmgroengrijs_grijswaarden_small
B20220518_BNP Paribas logo_voettekst
B20211201_Cardano_Logo 2021_website
AFM logo 2023 zwart wit
Bekijk al onze partners