The Terminal Real Wealth Optimization Problem with Index Bond: Equivalence of Real and Nominal Portfolio Choices for CRRA utility

Posted: 14 Jan 2008 Last revised: 30 Jul 2019

See all articles by Aihua Zhang

Aihua Zhang

University of Leicester - Department of Mathematics

Date Written: March 3, 2008

Abstract

In this paper, we consider an investment problem, maximizing expected utility of terminal real wealth. It is presented that, in the market where there exist a risk-free bond, an index bond and a stock, the problem of maximizing expected utility of real terminal wealth can be transformed to the problem of maximizing expected utility of nominal terminal wealth. We find that the real and nominal portfolio choices with CRRA utility are the same when the index bond is available for investment.

Keywords: Index bond, real wealth, optimization and portfolio choices

JEL Classification: C61, G11, E22, E31

Suggested Citation

Zhang, Aihua, The Terminal Real Wealth Optimization Problem with Index Bond: Equivalence of Real and Nominal Portfolio Choices for CRRA utility (March 3, 2008). Available at SSRN: https://ssrn.com/abstract=1083803 or http://dx.doi.org/10.2139/ssrn.1083803

Aihua Zhang (Contact Author)

University of Leicester - Department of Mathematics ( email )

University Road
Leicester, LE1 7RG
United Kingdom

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