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
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: Suggested Citation