Optimal Portfolio Management in a CIR Framework

Author

Wan, Shuping

Author_Institution

Coll. of Inf. Technol., Jiangxi Univ. of Finance & Econ., Nanchang

fYear

2007

fDate

21-25 Sept. 2007

Firstpage

4001

Lastpage

4003

Abstract

The optimal portfolio problem for a bank account, single risky stock and a rolling horizon bond is developed. The stochastic short-term interest rate with the Cox-Ingersoll-Ross (CIR) dynamics affects the prices of the stock and rolling horizon bond. The investment objective is maximizing expected CRRA utility of terminal wealth. The problem has been solved by the stochastic dynamic programming principle and the completion of squares technique. The closed-form optimal trading strategy is obtained. A numerical example illustrating the results is presented.

Keywords

dynamic programming; investment; stochastic programming; CIR framework; Cox-Ingersoll-Ross dynamics; bank account; closed-form optimal trading strategy; investment objective; optimal portfolio management; risky stock; rolling horizon bond; squares completion technique; stochastic dynamic programming; stochastic short-term interest rate; terminal wealth; Bonding; Control theory; Cost function; Dynamic programming; Economic indicators; Investments; Portfolios; Riccati equations; Security; Stochastic processes;

fLanguage

English

Publisher

ieee

Conference_Titel

Wireless Communications, Networking and Mobile Computing, 2007. WiCom 2007. International Conference on

Conference_Location

Shanghai

Print_ISBN

978-1-4244-1311-9

Type

conf

DOI

10.1109/WICOM.2007.989

Filename

4340764