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Optimal Investment Strategy under the CEV Model with Stochastic Interest Rate
Joint Authors
Source
Mathematical Problems in Engineering
Issue
Vol. 2020, Issue 2020 (31 Dec. 2020), pp.1-11, 11 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2020-03-11
Country of Publication
Egypt
No. of Pages
11
Main Subjects
Abstract EN
Interest rate is an important macrofactor that affects asset prices in the financial market.
As the interest rate in the real market has the property of fluctuation, it might lead to a great bias in asset allocation if we only view the interest rate as a constant in portfolio management.
In this paper, we mainly study an optimal investment strategy problem by employing a constant elasticity of variance (CEV) process and stochastic interest rate.
The assets of investment for individuals are supposed to be composed of one risk-free asset and one risky asset.
The interest rate for risk-free asset is assumed to follow the Cox–Ingersoll–Ross (CIR) process, and the price of risky asset follows the CEV process.
The objective is to maximize the expected utility of terminal wealth.
By applying the dual method, Legendre transformation, and asymptotic expansion approach, we successfully obtain an asymptotic solution for the optimal investment strategy under constant absolute risk aversion (CARA) utility function.
In the end, some numerical examples are provided to support our theoretical results and to illustrate the effect of stochastic interest rates and some other model parameters on the optimal investment strategy.
American Psychological Association (APA)
He, Yong& Chen, Peimin. 2020. Optimal Investment Strategy under the CEV Model with Stochastic Interest Rate. Mathematical Problems in Engineering،Vol. 2020, no. 2020, pp.1-11.
https://search.emarefa.net/detail/BIM-1198035
Modern Language Association (MLA)
He, Yong& Chen, Peimin. Optimal Investment Strategy under the CEV Model with Stochastic Interest Rate. Mathematical Problems in Engineering No. 2020 (2020), pp.1-11.
https://search.emarefa.net/detail/BIM-1198035
American Medical Association (AMA)
He, Yong& Chen, Peimin. Optimal Investment Strategy under the CEV Model with Stochastic Interest Rate. Mathematical Problems in Engineering. 2020. Vol. 2020, no. 2020, pp.1-11.
https://search.emarefa.net/detail/BIM-1198035
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1198035