Optimal Portfolio Strategy with Discounted Stochastic Cash Inflows
نویسنده
چکیده
This paper examines optimal portfolios with discounted stochastic cash inflows (SCI). The cash inflows are invested into a market that is characterized by inflation-linked bond, a stock and a cash account. It was assumed that inflationlinked bond, stock and the cash inflows are stochastic and follow a standard geometric Brownian motion. The variational form of Merton portfolio strategy was obtained by assuming that the investor chooses constant relative risk averse (CRRA) utility function. The inter-temporal hedging terms that offset any shock to the SCI were obtained. A closed form solution to our resulting non-linear partial differential equation was obtained.
منابع مشابه
AN EXTENSION TO STOCHASTIC TIME-COST TRADE-OFF PROBLEM OPTIMIZATION WITH DISCOUNTED CASH FLOW
In this paper, an efficient multi-objective model is proposed to solve time-cost trade off problem considering cash flows. The proposed multi-objective meta-heuristic is based on Ant colony optimization and is called Non Dominated Archiving Ant Colony Optimization (NAACO). The significant feature of this work is consideration of uncertainties in time, cost and more importantly interest rate. A ...
متن کاملThe Discounted Payback in Investment Appraisal: A Case Study
The purpose of this paper is to study a Monte Carlo simulation of the discounted payback, and its application to investment appraisal. The underlying project in the case study has a useful life of 10 years with an initial outlay of $2,000, and with stochastic, independent, and normally distributed cash inflows. These cash inflows are simulated from the same normal frequency distribution, i.e. f...
متن کاملThe Impact of Lease Structures on the Optimal Holding Period for a Commercial Real Estate Portfolio
Purpose The purpose of this paper is to exhibit the impacts of lease duration and lease break options on the optimal holding period for a real estate asset or portfolio. Methodology/approach We use a Monte Carlo simulation framework to simulate a real estate asset’s cash-flows in which lease structures (rent, indexation pattern, overall lease duration and break options) are explicitly taken int...
متن کاملOptimal Pension Asset Allocation Strategy for Defined-contribution Plans with Exponential Utility
This paper considers the asset allocation strategies for members of defined-contribution pension plans with exponential utility when there are three types of asset, cash, bonds and stocks. The portfolio problem is to maximize the expected utility of terminal wealth that uses the plan member’s final wage as a numeraire, in the presence of three risk sources, interest risk, asset risk and wage ri...
متن کاملGuaranteed Minimum Withdrawal Benefit in Variable Annuities
We develop a singular stochastic control model for pricing variable annuities with the guaranteed minimum withdrawal benefit. This benefit promises to return the entire initial investment, with withdrawals spread over the term of the contract, irrespective of the market performance of the underlying asset portfolio. A contractual withdrawal rate is set and no penalty is imposed when the policyh...
متن کامل