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An Extension of Some Results Due to Cox and Leland

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DOI: 10.4236/jmf.2013.34043    3,107 Downloads   4,787 Views  

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.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

A. Leung and W. Shi, "An Extension of Some Results Due to Cox and Leland," Journal of Mathematical Finance, Vol. 3 No. 4, 2013, pp. 416-425. doi: 10.4236/jmf.2013.34043.

References

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