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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| 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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| _version_ | 1832564372731330560 |
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| author | Hao Chang Kai Chang Ji-mei Lu |
| author_facet | Hao Chang Kai Chang Ji-mei Lu |
| author_sort | Hao Chang |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-f57e5cbd6ad547209d05597da1476b3a |
| institution | Kabale University |
| issn | 1085-3375 1687-0409 |
| language | English |
| publishDate | 2014-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Abstract and Applied Analysis |
| spelling | doaj-art-f57e5cbd6ad547209d05597da1476b3a2025-02-03T01:11:19ZengWileyAbstract and Applied Analysis1085-33751687-04092014-01-01201410.1155/2014/312640312640Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility FrameworkHao Chang0Kai Chang1Ji-mei Lu2School of Science, Tianjin Polytechnic University, Tianjin 300387, ChinaSchool of Finance, Zhejiang University of Finance & Economics, Hangzhou 310018, ChinaSchool of Electrical Engineering and Automation, Tianjin Polytechnic University, Tianjin 300387, ChinaThis 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.http://dx.doi.org/10.1155/2014/312640 |
| spellingShingle | Hao Chang Kai Chang Ji-mei Lu Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework Abstract and Applied Analysis |
| title | Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework |
| title_full | Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework |
| title_fullStr | Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework |
| title_full_unstemmed | Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework |
| title_short | Portfolio Selection with Liability and Affine Interest Rate in the HARA Utility Framework |
| title_sort | portfolio selection with liability and affine interest rate in the hara utility framework |
| url | http://dx.doi.org/10.1155/2014/312640 |
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