Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework
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...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2014-01-01
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| Series: | Abstract and Applied Analysis |
| Online Access: | http://dx.doi.org/10.1155/2014/312640 |
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| Summary: | 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. |
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| ISSN: | 1085-3375 1687-0409 |