Optimal investment decisions when time-horizon is uncertain

Blanchet-Scalliet, Christophette; Jeanblanc, Monique; Martellini, Lionel

doi:10.1016/j.jmateco.2007.09.004

Cited by 114 publications

(89 citation statements)

References 20 publications

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“…The reliability of investment decisions is based on effective investment return strategy development (Rutkauskas & Stasytyte, 2008). It is not necessary that agents behave rationally on several aspects of decision making process that is not completely understood so far (Scalliet, Karoui, Jeanblanc, & Martellini, 2008). Investors need to know the combined distributions that show possible results of their investment decisions since they don't know the final outcome of their investment decisions (Weber, 2005).…”

Section: Literature Review Emotional Intelligencementioning

confidence: 99%

Effect of Emotional Intelligence on Investment Decision Making With a Moderating Role of Financial Literacy

Hadi¹

2017

CUBR

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This study explores the impact of emotional intelligence on investment decision making with a moderating role of financial literacy. The data are collected by using convenient sampling technique through a 5-point Likert scale questionnaire from a sample of 160 investors from stock exchange and banks. We found a positive and significant relationship between emotional intelligence and investment decision making and the same between financial literacy and investment decision. In addition, when we examined these two relationships under financial literacy, the relationship between emotional intelligence and investment decision making was further strengthened and significantly associated. The results suggest that to make suitable investment decisions, investors should have control on their emotions. Moreover, financial literacy of investors moderates this relationship. Investor's decision making may depend on other factors that need to be explored for in addition to what we have found in our study.The sample size and geographical coverage should increase to consider the importance of this study.

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Section: Literature Review Emotional Intelligencementioning

confidence: 99%

Effect of Emotional Intelligence on Investment Decision Making With a Moderating Role of Financial Literacy

Hadi¹

2017

CUBR

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“…Amongst other things, they overcome problems with the terminal condition and present the resulting life insurance rules. Other papers studying the effect of mortality risk are Blanchard (1985), Blanchet-Scalliet et al (2008) and Blanchet-Scalliet, Karoui, and Martellini (2005). Blanchet-Scalliet et al (2008) extend the model setup of Merton (1971) with a stochastic time horizon.…”

Section: Literaturementioning

confidence: 99%

“…Other papers studying the effect of mortality risk are Blanchard (1985), Blanchet-Scalliet et al (2008) and Blanchet-Scalliet, Karoui, and Martellini (2005). Blanchet-Scalliet et al (2008) extend the model setup of Merton (1971) with a stochastic time horizon. They show that the optimal portfolio decisions are influenced by the stochastic time of death if randomness in stocks and time of death are related.…”

Section: Literaturementioning

confidence: 99%

Consumption-Investment Problems with Stochastic Mortality Risk

Schendel

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in Non-Technical SummaryLife cycle consumption-investment models often assume a deterministic time of death or, if at all, include deterministic mortality risk given by mortality tables. Only a few recent papers allow for stochastic mortality risk driven by a diffusive component. In reality, cancer and other critical illnesses suggest that there is a significant jump component in the individual hazard rate of death that is not captured by the life cycle consumption-investment models. This raises the question of the importance of mortality risk in life cycle consumption-investment models, and what impact a jump component in the hazard rate of death has. My paper aims to close this gap in the literature.The main feature of my model is the uncertain time of death due to mortality risk. Mortality risk is rarely considered in continuous-time life cycle models, whereas it is often analyzed in the insurance literature. The main difference between the life cycle and the insurance perception of mortality risk is that the insurance literature considers aggregate mortality rates. In contrast, in the individual consumption-investment decision, I focus on an agent's perspective and consider the individual mortality risk of an agent. This difference affects both interpretation and modeling. If the actuarial literature considers jumps, it focuses mostly on negative jumps since these yield decreased profits of annuities. Furthermore, it considers jumps in aggregate mortality rates. In my model, individual positive shocks that occur with higher intensity are more important. These can be interpreted as health problems with a permanent impact, e.g. medical disasters like a cancer detection or an accident.I analyze the impact of mortality risk in a life cycle consumption-investment model. Further model features are unspanned labor income risk, short-sale and liquidity constraints and a simple insurance. The mortality process is calibrated to mortality data for Germany and allows uncertainty driven by a diffusive and jump component. I compare results with deterministic time of death and stochastic time of death. Furthermore, I provide sensitivity analyses with respect to the agent's characteristics and the financial market. I also analyze the impact of the insurance and of a bequest motive.The mortality calibration shows that allowing for jumps in the hazard rate of death significantly increases the fit to the data. Considering the resu...

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“…Such an intertemporal default is modeled in a reduced form, so the corresponding counterparty credit risk model is a hybrid between the structural and reduced form approaches. Other applications include optimal investment problems with uncertain time horizon (see BlanchetScalliet et al [8]), and modeling the prepayment risk of mortgage-backed securities (see Zhou [47]). …”

Section: Model Setupmentioning

confidence: 99%

A Multidimensional Exponential Utility Indifference Pricing Model with Applications to Counterparty Risk

Henderson

Liang

2011

SSRN Journal

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This paper considers exponential utility indifference pricing for a multidimensional nontraded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is the splitting method, whose convergence is proved based on the Barles-Souganidis monotone scheme, and the convergence rate is derived based on Krylov's shaking the coefficients technique. We apply our methodology to study the counterparty risk of derivatives in incomplete markets.

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Optimal investment decisions when time-horizon is uncertain

Cited by 114 publications

References 20 publications

Effect of Emotional Intelligence on Investment Decision Making With a Moderating Role of Financial Literacy

Effect of Emotional Intelligence on Investment Decision Making With a Moderating Role of Financial Literacy

Consumption-Investment Problems with Stochastic Mortality Risk

A Multidimensional Exponential Utility Indifference Pricing Model with Applications to Counterparty Risk

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