Dynamic asset allocation for bank under stochastic interest rates

Fatma Chakroun and Fathi Abid

MPRA Paper from University Library of Munich, Germany

Abstract: This paper considers the optimal asset allocation strategy for bank with stochastic interest rates when there are three types of asset: Bank account, loans and securities. The asset allocation problem is to maximize the expected utility from terminal wealth of a bank's shareholders over a finite time horizon. As a consequence, we apply a dynamic programming principle to solve the Hamilton-Jacobi-Bellman (HJB) equation explicitly in the case of the CRRA utility function. A case study is given to illustrate our results and to analyze the effect of the parameters on the optimal asset allocation strategy.

Keywords: Bank asset allocation; Stochastic interest rates; Dynamic programming principle; HJB equation; CRRA utility. (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-ban and nep-upt
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