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Hedging Demand for Bequest Motives

This paper considers the case of an investor who has only bequest motives while facing uncertainty in the opportunity set. We analyze her optimal hedging demand and show that the latter can be cast into a single portfolio that involves the wealth certainty equivalent. Our decomposition is useful to understand humps in the hedging demand of the equity market that are usually attributed to consumption (Wachter, 2002; Munk, 2008).