Investor’s Power Utility Optimization with Consumption, Tax, Dividend and Transaction Cost under Constant Elasticity of Variance Model
Journal Title: Asian Research Journal of Mathematics - Year 2017, Vol 4, Issue 2
Abstract
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.
Authors and Affiliations
Silas A. Ihedioha
Keywords
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- EP ID EP338444
- DOI 10.9734/ARJOM/2017/33425
- Views 52
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