Statistics and Its Interface

Volume 9 (2016)

Number 1

An application of stochastic control theory to a bank portfolio choice problem

Pages: 69 – 77

DOI: http://dx.doi.org/10.4310/SII.2016.v9.n1.a7

Authors

Fatma Chakroun (Faculty of Economics and Management, Sfax University, Sfax, Tunisia)

Fathi Abid (Faculty of Economics and Management, Sfax University, Sfax, Tunisia)

Abstract

This paper presents an application of stochastic control theory to a bank portfolio choice problem. By applying a dynamic programming principle, we find a closed form solution for the CRRA utility function. A case study is given to illustrate our results and analyze the effect of the parameters on the optimal asset allocation strategy.

Keywords

bank portfolio, stochastic optimal control, dynamic programming principle, CRRA utility

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