Optimal Investment Strategy under the CEV Model with Stochastic Interest Rate

Joint Authors

Chen, Peimin
He, Yong

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

Civil Engineering

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