Munich Personal RePEc Archive

Dynamic asset allocation for bank under stochastic interest rates.

Chakroun, Fatma and Abid, Fathi (2014): Dynamic asset allocation for bank under stochastic interest rates.

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Abstract

This paper considers the optimal asset allocation strategy for bank with stochastic interest rates when there are three types of asset: Bank account, loans and securities. The asset allocation problem is to maximize the expected utility from terminal wealth of a bank's shareholders over a finite time horizon. As a consequence, we apply a dynamic programming principle to solve the Hamilton-Jacobi-Bellman (HJB) equation explicitly in the case of the CRRA utility function. A case study is given to illustrate our results and to analyze the effect of the parameters on the optimal asset allocation strategy.

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