JMF  Vol.3 No.1 , February 2013
Optimal Portfolio Strategy with Discounted Stochastic Cash Inflows
Author(s) Charles I. Nkeki

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 inflation-linked 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.

Cite this paper
C. Nkeki, "Optimal Portfolio Strategy with Discounted Stochastic Cash Inflows," Journal of Mathematical Finance, Vol. 3 No. 1, 2013, pp. 130-137. doi: 10.4236/jmf.2013.31012.
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