Investor’s Power Utility Optimization with Consumption, Tax, Dividend and Transaction Cost under Constant Elasticity of Variance Model | Chapter 07 | Advances in Mathematics and Computer Science Vol. 3
This work considered an investor’s
portfolio where consumption, taxes, transaction costs and dividends are in
involved, under constant elasticity of variance (CEV). The stock price is
assumed to be governed by a constant elasticity of variance CEV model and the
goal is to maximize the expected utility of consumption and terminal wealth where
the investor has a power utility preference. The application of dynamic programming
principles, specifically 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 and
consumption strategies. It is found that optimal investment on the risky asset
is horizon dependent.
Author(s) Details
Silas A. Ihedioha
Department of Mathematics,
Plateau State University, Bokkos, P.M.B. 2012, Jos, Plateau State, Nigeria.
View Volume: https://doi.org/10.9734/bpi/amacs/v3
Comments
Post a Comment