Age-dependent robust strategic asset allocation with inflation–deflation hedging demand
This study analyzes robust strategic asset allocation under a quadratic security market model with stochastic volatility and inflation rates assuming “age-dependent robust utility” in which relative ambiguity aversion is a decreasing function of age. We show that, unlike homothetic robust utility, a...
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| Veröffentlicht in: | Mathematics and financial economics 2024-12, Vol.18 (4), p.641-670 |
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| container_title | Mathematics and financial economics |
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| creator | Kikuchi, Kentaro Kusuda, Koji |
| description | This study analyzes robust strategic asset allocation under a quadratic security market model with stochastic volatility and inflation rates assuming “age-dependent robust utility” in which relative ambiguity aversion is a decreasing function of age. We show that, unlike homothetic robust utility, age-dependent robust utility cannot be interpreted as homothetic stochastic differential utility. We consider the finite-time consumption-investment problem and derive a linear approximate optimal robust portfolio candidate decomposed into myopic, intertemporal hedging, and inflation–deflation hedging demands. Our numerical analysis of the approximate optimal allocation to the S &P500 shows modest hump-shaped age effects, similar to the results of a previous empirical analysis, and that the upswing is due to the increase in myopic demand, while the downswing is due to the decrease in intertemporal hedging demand. |
| doi_str_mv | 10.1007/s11579-024-00369-9 |
| format | Article |
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| subjects | Age Age differences Ambiguity Applications of Mathematics Approximation Asset allocation Assets Candidates Deflation Demand analysis Economic Theory/Quantitative Economics/Mathematical Methods Economics Empirical analysis Finance Hedging Inflation rates Insurance Interest rates International finance Investors Macroeconomics/Monetary Economics//Financial Economics Management Market timing Mathematics Mathematics and Statistics Numerical analysis Ordinary differential equations Partial differential equations Probability Quantitative Finance Risk premiums Robustness Scandals Statistics for Business Volatility |
| title | Age-dependent robust strategic asset allocation with inflation–deflation hedging demand |
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