Operations Research Transactions ›› 2010, Vol. 14 ›› Issue (4): 92-100.

• Original Articles • Previous Articles     Next Articles

Investment Strategies in the Presence of a Minimum Performance Guarantee under Stochastic Interest Rate

LIU Fu-Bing, LIU Hai-Long   

  • Online:2010-12-15 Published:2010-12-15

Abstract: Under the stochastic interest rate environment, we consider fund manager’s optimal investment problem with a minimum performance guarantee. Using martingale method, we derive the explicit solution. The result shows that the optimal investment strategies include three parts: one is the speculative portfolio strategy, another is the hedge strategy for stochastic interest rate, the other is the replicating strategy for the benchmark portfolio which is used as the minimum performance guarantee. In addition, the optimal investment strategies at any time are equivalent to the strategies which are to invest in a portfolio which generates the amount of benchmark portfolio at the final date and to invest remainder of one’s wealth as if unconstrained