Benefits of fluctuating exchange rates on the investor's wealth
Summary: We consider a problem of maximizing the utility of an agent who invests in a stock and a money market account incorporating proportional transaction costs (\(\lambda > 0\)) and foreign exchange rate fluctuations. Assuming a HARA utility function \(U(c) = c^p/p\) for all \(c\geq0\), \(p<1\), \(p\neq0\), we suggest an approach of determining the value function. Contrary to fears associated with exchange rate fluctuations, our results show that these fluctuations can bring about tangible benefits in one's wealth. We quantify the level of these benefits. We also present an example which illustrates an investment strategy of our agent.
- Optimal investment in the foreign exchange market with proportional transaction costs
- Optimal portfolio of foreign direct investment with fluctuations of exchange rate under jump-diffusion
- Multivariate utility maximization with proportional transaction costs
- Study of foreign direct investment and tax policy with fluctuations of exchange rate
- International diversification benefits with foreign exchange investment styles
- Asymptotic Analysis for Optimal Investment in Finite Time with Transaction Costs
- Asymptotic analysis of optimal investment and consumption with transaction costs.
- Explicit solutions of some utility maximization problems in incomplete markets
- Optimal investment and consumption with transaction costs
- Optimal Investment With Undiversifiable Income Risk
- Optimum consumption and portfolio rules in a continuous-time model
- Portfolio Selection with Transaction Costs
- Portfolio selection with transactions costs
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