OPTIMAL ASSET ALLOCATION PROBLEM FOR AN INVESTOR WITH ORNSTEN-UHLEBECK STOCHASTIC INTEREST RATE MODEL

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Published: 2017-07-29

Page: 33-41


SILAS A. IHEDIOHA *

Department of Mathematics, Plateau State University, Bokkos, P.M.B. 2012, Jos, Plateau State, Nigeria

*Author to whom correspondence should be addressed.


Abstract

This work considered that an investor’s portfolio is comprised of two assets- a risky stock which price process is driven by the geometric Brownian motion and a risk-free asset with Ornstein-Uhlenbeck Stochastic interest rate of return, where consumption, taxes, transaction costs and dividends are in involved. The application of the maximum principle obtained the Hamilton-Jacobi-Bellman (HJB) equation for the value function on which elimination of variable dependency was applied to obtain the close form solution of the optimal investment strategy.

Keywords: Asset allocation, investor, stochastic, interest rate, Hamilton-Jacobi-Bellman (HJB), maximum principle


How to Cite

IHEDIOHA, S. A. (2017). OPTIMAL ASSET ALLOCATION PROBLEM FOR AN INVESTOR WITH ORNSTEN-UHLEBECK STOCHASTIC INTEREST RATE MODEL. Asian Journal of Mathematics and Computer Research, 19(1), 33–41. Retrieved from https://ikprress.org/index.php/AJOMCOR/article/view/814

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