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Inventi Impact - Emerging Economies

Articles

  • Inventi:mee/19591/16
    OPTIMIZATION OF AN INVESTOR’S PORTFOLIO UNDER CONSTANT ELASTICITY OF VARIANCE MODEL AND POWER UTILITY FUNCTION
    Silas A Ihedioha*

    In this study, optimal portfolio of an investor is studied when there are taxes, dividends, transaction costs and a riskfree asset with time varying rate of returns under constant elasticity of variance model. The Hamilton-Jacob–Bellman (HJB) equation associated with the optimization problem is obtained using the Ito’s lemma. Explicit solution of the power utility maximization is obtained. It was found that the optimal investment of the investor is dependent on horizon and wealth. Also found that the investment in the risky asset increased by a fraction of the wealth when transaction costs and taxes are charged on the total investment of the investor. The investor should take the horizon and wealth dependency of his investment into consideration when making investment policy decisions.

    How to Cite this Article
    Silas A Ihedioha. Optimization of an Investor’s Portfolio Under Constant Elasticity of Variance Model and Power Utility Function. Inventi Impact: Emerging Economies, 2016(4):196-203, 2016.
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