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Optimal Acquisition of a Partially Hedgeable House
Fri, Oct 03, 2008 @ 03:30 PM - 04:30 PM
Daniel J. Epstein Department of Industrial and Systems Engineering
University Calendar
DEPARTMENT OF MATHEMATICS - MATH FINANCE COLLOQUIUMTitle: "Optimal Acquisition of a Partially Hedgeable House"Speaker: Professor Fernando Zapatero, Dept of Finance and Business Economics, USC Marshall School of BusinessABSTRACT: We consider the problem of the optimal time to purchase a house by a
risk-averse investor who has access to complete financial markets and
whose objective is to maximize expected utility from wealth at some fixed
horizon. The house purchase is financially attractive (due to tax advantages, for
example), which provides an incentive to buy as soon as possible;
however, its value is only partially correlated with financial markets and,
therefore, house price risk cannot be perfectly hedged, which provides
an incentive to delay purchase. We are able to fully characterize the
problem in the case of CARA utility, so that we can generate simple numerical
solutions for different parameter values, and study the trade-off between
the two conflicting incentives.Where: KAP 249When: FRIDAY, OCTOBER 3, 2008, 3:30--4:30 PM
Location: Kaprielian Hall (KAP) - 249
Audiences: Everyone Is Invited
Contact: Georgia Lum
