CHINESE JOURNAL OF APPLIED PROBABILITY AND STATIST 2012, 28(3) 301-310 DOI:      ISSN: 1001-4268 CN: 31-1256

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Dynamic Portfolio Selection with Stochastic Interest Rates for Quadratic Utility Maximizing

Chang Hao,Chang Kai

Department of Mathematics, Tianjin Polytechnic University, School of Management, Tianjin University, School of Management, Tianjin UniversityShenzhen Graduate School, Harbin Institute of
Technology

Abstract��

This paper is concerned with a portfolio
selection problem with stochastic interest rates and assumes that
interest rate is driven by the Ho-Lee model and the Vasicek model
respectively. We apply dynamic programming principle to derive the
HJB equation and use Legendre transform to obtain the dual one.
Quadratic utility function is taken for our analysis. The
closed-form solutions to the optimal investment strategy are derived
by applying variable change technique.

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