Research ArticleOpen AccessGoogle Scholar indexed
An Extension of Some Results Due to Cox and Leland
Monash University, Clayton, Australia
Monash University, Clayton, Australia
- 1 Monash University, Clayton, Australia
- 2 Monash University, Clayton, Australia
Journal of Mathematical Finance·Volume 03 (2013)·Pages 416–425·Published 17 October 2013·DOI10.4236/jmf.2013.34043
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Abstract
We investigate an optimal portfolio allocation problem between a risky and a risk-free asset, as in [ 1 ]. They obtained explicit conditions for path-independence and optimality of allocation strategies when the price of the risky asset follows a geometric Brownian motion with constant asset characteristics. This paper analyzes and extends their results for dynamic investment strategies by allowing for non-constant returns and volatility. We adopt a continuous-time approach and appeal to well established results in stochastic calculus for doing so.
KeywordsPath IndependenceDynamic Asset AllocationDynamic OptimizationCalculus of Variations
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