Hedging goals

Krabichler, Thomas; Wunsch, Marcus

doi:10.1007/s11408-023-00437-y

Please use this identifier to cite or link to this item: https://doi.org/10.21256/zhaw-29377

Publication type:	Article in scientific journal
Type of review:	Peer review (publication)
Title:	Hedging goals
Authors:	Krabichler, Thomas Wunsch, Marcus
et. al:	No
DOI:	10.1007/s11408-023-00437-y 10.21256/zhaw-29377
Published in:	Financial Markets and Portfolio Management
Volume(Issue):	38
Issue:	1
Page(s):	93
Pages to:	122
Issue Date:	17-Nov-2023
Publisher / Ed. Institution:	Springer
ISSN:	1934-4554 2373-8529
Language:	English
Subjects:	Goal-based investing; Quantile hedging; Efficient hedging; Deep hedging
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 goalbased investing and option hedging that was originally discovered in Browne (Adv Appl Probab 31(2):551–577, 1999) 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. Föllmer and Leukert in Finance Stoch 3:251–273, 1999) and minimizing the expected shortfall (efficient hedging, cf. Föllmer and Leukert in Finance Stoch 4:117–146, 2000) 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.
Further description:	Erworben im Rahmen der Schweizer Nationallizenzen (http://www.nationallizenzen.ch)
URI:	https://digitalcollection.zhaw.ch/handle/11475/29377
Fulltext version:	Published version
License (according to publishing contract):	CC BY 4.0: Attribution 4.0 International
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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Krabichler, T., & Wunsch, M. (2023). Hedging goals. Financial Markets and Portfolio Management, 38(1), 93–122. https://doi.org/10.1007/s11408-023-00437-y

Krabichler, T. and Wunsch, M. (2023) ‘Hedging goals’, Financial Markets and Portfolio Management, 38(1), pp. 93–122. Available at: https://doi.org/10.1007/s11408-023-00437-y.

T. Krabichler and M. Wunsch, “Hedging goals,” Financial Markets and Portfolio Management, vol. 38, no. 1, pp. 93–122, Nov. 2023, doi: 10.1007/s11408-023-00437-y.

KRABICHLER, Thomas und Marcus WUNSCH, 2023. Hedging goals. Financial Markets and Portfolio Management. 17 November 2023. Bd. 38, Nr. 1, S. 93–122. DOI 10.1007/s11408-023-00437-y

Krabichler, Thomas, and Marcus Wunsch. 2023. “Hedging Goals.” Financial Markets and Portfolio Management 38 (1): 93–122. https://doi.org/10.1007/s11408-023-00437-y.

Krabichler, Thomas, and Marcus Wunsch. “Hedging Goals.” Financial Markets and Portfolio Management, vol. 38, no. 1, Nov. 2023, pp. 93–122, https://doi.org/10.1007/s11408-023-00437-y.