Dynamic Portfolio Selection with Stochastic Interest Rates for Quadratic Utility Maximizing

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.