Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework

Hao Chang, Kai Chang and Ji-mei Lu

Abstract and Applied Analysis, 2014, vol. 2014, 1-12

Abstract:

This paper studied an asset and liability management problem with stochastic interest rate, where interest rate is assumed to be governed by an affine interest rate model, while liability process is driven by the drifted Brownian motion. The investors wish to look for an optimal investment strategy to maximize the expected utility of the terminal surplus under hyperbolic absolute risk aversion (HARA) utility function, which consists of power utility, exponential utility, and logarithm utility as special cases. By applying dynamic programming principle and Legendre transform, the explicit solutions for HARA utility are achieved successfully and some special cases are also discussed. Finally, a numerical example is provided to illustrate our results.

Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
http://downloads.hindawi.com/journals/AAA/2014/312640.pdf (application/pdf)
http://downloads.hindawi.com/journals/AAA/2014/312640.xml (text/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlaaa:312640

DOI: 10.1155/2014/312640

Access Statistics for this article

More articles in Abstract and Applied Analysis from Hindawi
Bibliographic data for series maintained by Mohamed Abdelhakeem ().