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arxiv: 0705.0053 · v3 · submitted 2007-05-01 · 💱 q-fin.PM · math.OC· math.PR· q-fin.RM

Mutual Fund Theorems when Minimizing the Probability of Lifetime Ruin

classification 💱 q-fin.PM math.OCmath.PRq-fin.RM
keywords theoremsconsumptionfundlifetimemutualobtainprobabilityruin
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We show that the mutual fund theorems of Merton (1971) extend to the problem of optimal investment to minimize the probability of lifetime ruin. We obtain two such theorems by considering a financial market both with and without a riskless asset for random consumption. The striking result is that we obtain two-fund theorems despite the additional source of randomness from consumption.

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