Precommitted Investment Strategy versus Time-Consistent Investment Strategy for a Dual Risk Model
We are concerned with optimal investment strategy for a dual risk model. We assume that the company can invest into a risk-free asset and a risky asset. Short-selling and borrowing money are allowed. Due to lack of iterated-expectation property, the Bellman Optimization Principle does not hold. Thus...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Hindawi Limited
2014-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2014/972487 |
| Summary: | We are concerned with optimal investment strategy for a dual risk model. We assume that the company can invest into a risk-free asset and a risky asset. Short-selling and borrowing money are allowed. Due to lack of iterated-expectation property, the Bellman Optimization Principle does not hold. Thus we investigate the precommitted strategy and time-consistent strategy, respectively. We take three steps to derive the precommitted investment strategy. Furthermore, the time-consistent investment strategy is also obtained by solving the extended Hamilton-Jacobi-Bellman equations. We compare the precommitted strategy with time-consistent strategy and find that these different strategies have different advantages: the former can make value function maximized at the original time t=0 and the latter strategy is time-consistent for the whole time horizon. Finally, numerical analysis is presented for our results. |
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| ISSN: | 1026-0226 1607-887X |