Dynamic Asset Allocation under Stochastic Interest Rate and Market Price of Risk
نویسنده
چکیده
This article investigates an optimal allocation problem of assets under Gaussian state variables consisting of the risk-free rate and the multi dimensional market price of risk. The optimal portfolio consisting of a bond and several stocks is derived. The idea is that the indirect utility as a solution of a partial differential equation is expressed as a zero-coupon bond price in a different economy having a quadratic Gaussian short rate by the Feynman-Kac formula, then the bond price is obtained with an exponentially quadratic state-price density process which is closely related to some of quadratic term structure models.
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