Logarithm utility portfolio for asset and liability management with stochastic interest rates

Author

Chang, Hao ; Chang, Kai

Author_Institution

Dept. of Math., Tianjin Polytech. Univ., Tianjin, China

fYear

2012

fDate

23-25 May 2012

Firstpage

2035

Lastpage

2038

Abstract

This paper applies the maximum principle to obtain Hamilton-Jocabi-Bellman (HJB) equation for the asset and liability management problem under stochastic interest rate. And the optimal investment strategies under the Ho-Lee model and the Vasicek model are investigated respectively. Logarithm utility function is taken as the risky preference of investors and the closed-form solutions of the optimal investment strategy are derived via adopting Legendre transform approach.

Keywords

asset management; investment; maximum principle; professional aspects; risk management; stochastic processes; transforms; utility theory; HJB equation; Hamilton-Jocabi-Bellman equation; Ho-Lee model; Legendre transform approach; Vasicek model; asset management problem; closed-form solutions; liability management problem; logarithm utility function; logarithm utility portfolio; maximum principle; optimal investment strategies; risky preference; stochastic interest rates; Boundary conditions; Economic indicators; Equations; Investments; Mathematical model; Portfolios; Stochastic processes; HJB equation; Legendre transform; Stochastic interest rate; asset and liability management; logarithm utility; portfolio;

fLanguage

English

Publisher

ieee

Conference_Titel

Control and Decision Conference (CCDC), 2012 24th Chinese

Conference_Location

Taiyuan

Print_ISBN

978-1-4577-2073-4

Type

conf

DOI

10.1109/CCDC.2012.6244328

Filename

6244328