An application of dynamic programming principle in corporate international optimal investment and consumption choice problem

DOI10.1155/2010/472867MaRDI QIDQ624702zbMATH OpenOpenAlexWikidataFDO

Authors Zongyuan Huang, Zhen Wu

Publication date 9 February 2011

Published in Mathematical Problems in Engineering (Search for Journal in Brave)

Full work available at URL https://eudml.org/doc/226784

Mathematics Subject Classification ID

Dynamic programming in optimal control and differential games (49L20) Utility theory (91B16) Portfolio theory (91G10)

Review text

Summary: This paper is concerned with a kind of corporate international optimal portfolio and consumption choice problems, in which the investor can invest her or his wealth either in a domestic bond (bank account) or in an oversea real project with production. The bank pays a lower interest rate for deposit and takes a higher rate for any loan. First, we show that Bellman's dynamic programming principle still holds in our setting; second, in terms of the foregoing principle, we obtain the investor's optimal portfolio proportion for a general maximizing expected utility problem and give the corresponding economic analysis; third, for the special but nontrivial Constant Relative Risk Aversion (CRRA) case, we get the investors optimal investment and consumption solution; last but not least, we give some numerical simulation results to illustrate the influence of volatility parameters on the optimal investment strategy.

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Cites work

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Cited in

(3)

• A simple model of corporate international investment under incomplete information and taxes
• The corporate optimal portfolio and consumption choice problem in the real project with borrowing rate higher than deposit rate
• Optimal investment-consumption problem with discontinuous prices and random horizon

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