Personalized goal-based investing via multi-stage stochastic goal programming. Issue 3 (3rd March 2020)

• Record Type: Journal Article
• Authors: Kim, Woo Chang; Kwon, Do-Gyun; Lee, Yongjae; Kim, Jang Ho; Lin, Changle
• Is Part Of: Quantitative finance. Volume 20:Issue 3(2020)
• Page Start: 515
• Page End: 526
• Publication Date: 2020-03-03
• Subjects: Goal-based Investing -- Goal Programming -- Multi-stage Stochastic Programming -- Automated Investment Management -- Robo-advisor -- Financial Technology (FinTech) -- Retirement planning -- Defined contribution pension plan; Finance -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Investments -- Mathematics -- Periodicals; Economics -- Periodicals; Finances -- Modèles mathématiques -- Périodiques; 332.015118
• DOI: 10.1080/14697688.2019.1662079
• Languages: English
• ISSNs: 1469-7688

Abstract

Abstract : In this paper, we propose a goal-based investment model that is suitable for personalized wealth management. The model only requires a few intuitive inputs such as size of wealth, investment amount, and consumption goals from individual investors. In particular, a priority level can be assigned to each consumption goal and the model provides a holistic solution based on a sequential approach starting with the highest priority. This allows strict prioritization by maximizing the probability of achieving higher priority goals that are not affected by goals with lower priorities. Furthermore, the proposed model is formulated as a linear program that efficiently finds the optimal financial plan. With its simplicity, flexibility, and computational efficiency, the proposed goal-based investment model provides a new framework for automated investment management services.