Silas A. Ihedioha
Keywords: Optimal investment strategy, investor, modified constant elasticity of variance (M-CEV), ornsteinuhlenbeck model, exponential utility maximization.
Abstract: This work is aimed at finding the optimal investment strategy for an investor under the modified constant elasticity of variance (M-CEV) and Ornstein-Uhlenbeck models. We assume that the stock price is governed by modified constant elasticity of variance (M-CEV) model, where the investor has an exponential utility preference. We also investigate the impact of the correlation of the Brownian motions. Dynamic programming principle, precisely, the maximum principle is applied to obtained the Hamilton-Jacobi-Bellman (HJB) equation, on which elimination of variable dependency was applied to obtain the closed from solution of the optimal investment strategies. It was verified that the investor’s optimal investment strategy when the Brownian motions correlate is greater than the investor’s optimal investment strategy when the Brownian motions do not correlate by a fraction
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