An Application of Dynamic Programming Principle in Corporate International Optimal Investment and Consumption Choice Problem

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...

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Bibliographic Details
Published inMathematical Problems in Engineering Vol. 2010; no. 1; pp. 158 - 173-109
Main Authors Huang, Zongyuan, Wu, Zhen
Format Journal Article
LanguageEnglish
Published New York Hindawi Limiteds 01.01.2010
Hindawi Publishing Corporation
Hindawi Limited
Subjects
Consumption
Dynamic programming
Economic analysis
Economic models
Foreign exchange rates
Investment policy
Investment strategy
Mathematical problems
Optimization
Risk analysis
Stochastic models
Studies
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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.
ISSN:1024-123X
1563-5147
DOI:10.1155/2010/472867