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On The Closed Form Strategies of an Investor under the CEV and CIR Processes

Edikan Akpanibah, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Bright Osu, Everestus Eze, Chidi Okonkwo, Ben Oruh, Udeme Ini, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics and Computer Science, Niger Delta University, Bayelsa, Nigeria
2021 International Journal of Mathematical Analysis and Optimization: Theory and Applications  

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In this paper, the explicit solutions of the optimal investment plans of an investor with exponential utility function exhibiting constant absolute risk aversion (CARA) under constant elasticity of variance (CEV) and stochastic interest rate is studied. A portfolio comprising of a risk-free asset modelled by the Cox-Ingersoll-Ross (CIR) process and two risky assets modelled by the CEV process is considered, where the instantaneous volatilities of the two risky assets form a 2 x 2 matrix n =
more » ... q}2x2 such that nnT is positive definite. Using the power transformation and change of variable approach with asymptotic expansion technique, explicit solutions of the optimal investment plans are found. Moreover, numerical simulations are used to study the effects of the interest rate, elasticity parameter, correlation coefficient and the risk averse coefficient on the optimal investment plans.
doi:10.52968/28306828 fatcat:qaabfbrpundf5lv5rvpg46y2hu
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Edikan Akpanibah, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Bright Osu, Everestus Eze, Chidi Okonkwo, Ben Oruh, Udeme Ini, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics, Michael Okpara University of Agriculture, Umudike, Nigeria, Department of Mathematics and Computer Science, Niger Delta University, Bayelsa, Nigeria. "On The Closed Form Strategies of an Investor under the CEV and CIR Processes." International Journal of Mathematical Analysis and Optimization: Theory and Applications 7.1 (2021) 87-107