Optimal investment

Social exchange theory is used to gain a better understanding of the relationship between a buyer and a supplier that is characterized by lock-in situations. We begin by reviewing the theoretical foundations of social exchange theory. Next, we use an illustrative multinational business example from a Danish Business Group to demonstrate the complexities of the lock-in situation. Conjectures related to lock-in behaviors are initially developed and then examined by means of a game-theoretic model. The analysis provides a basis for the ...

In this paper we consider the optimal investment problem in a market where the stock price process is modeled by a geometric Levy process (taking into account jumps). Except for the geometric Brownian model and the geometric Poissonian model, the resulting models are incomplete and there are many equivalent martingale measures. However, the model can be completed by the so-called power-jump assets. By doing this we allow investment in these new assets and we can try to maximize the expected utility of these portfolios. As particular cases we obtain the optimal portfolios based in stocks and bonds, showing that the new assets are superfluous for certain martingale measures that depend on the utility function we use.

En general, se admite que la decisión de inversión es una decisión de optimización dinámica,en la que el inversionista elije el nivel de inversión considerando su retorno futuro.
Los problemas de optimización dinámica se resuelven por tres caminos alternativos: cálculo de variaciones; teoría de control óptimo, y programación dinámica.
En los tres casos, el problema parte de considerar dos tipos de variables: las variables de estado y las variables de control.

New information and communication technologies have been
gaining widespread use in Distance Education (DE) models.
At the same time, the uncertainty in the market demand for
this form of higher education is such that the valuation of e-
Learning projects has become increasingly difficult and complex.
This is due to the fact that uncertainty and flexibility
are central to DE projects, and traditional valuation models
such as the Discounted Cash Flow (DCF) method fail to capture
the value of the management flexibility that is inherent
in these types of projects. We analyze a typical college level
MBA DE project and show how option pricing methods can
be used to determine both the project value and the optimal
investment strategy. We develop a real options model which
allows managers to optimize their decision making process
when there is the option to postpone project implementation
for a limited period of time. We conclude that this approach
allows for a more comprehensive valuation of the strategic
flexibilities that exist in this class of project, improves the
quality of managerial decisions and reduces the risk of investment
under uncertainty.

Previous literature suggests specific behavioral tendencies cause investors to deviate from optimal investing. We investigate three such tendencies in a simplified stock market. Subjects do trade for better stocks, but do not reach their maximum potential earnings, most commonly because they choose to ignore information and continue to hold on to a stock regardless of its performance. The results support

In the paper " Optimum Consumption and Portfolio Rules in a continuous-Time Model, " by R. C. Merton (J. Econ. Theory 3 (1971), 373-413), solutions obtained in cases when marginal utility at zero consumption is finite are not feasible. While they do satisfy the Hamilton-Jacobi Bellman equations, they do not represent appropriate value functions because the boundary behavior near zero wealth is not satisfactorily dealt with. In this note, we specify the boundary behavior and characterize optimal solutions. Journal of Economic Literature Classification Numbers: 022, 213. r 1988 Academic Press. Inc

We consider an insurance company whose surplus is represented by the classical Cramer-Lundberg process. The company can invest its surplus in a risk free asset and in a risky asset, governed by the Black-Scholes equation. There is a constraint that the insurance company can only invest in the risky asset at a limited leveraging level; more precisely, when purchasing, the ratio of the investment amount in the risky asset to the surplus level is no more than a; and when shortselling, the proportion of the proceeds from the short-selling to the surplus level is no more than b. The objective is to find an optimal investment policy that minimizes the probability of ruin. The minimal ruin probability as a function of the initial surplus is characterized by a classical solution to the corresponding Hamilton-Jacobi-Bellman (HJB) equation. We study the optimal control policy and its properties. The interrelation between the parameters of the model plays a crucial role in the qualitative behavior of the optimal policy. E.g., for some ratios between a and b, quite unusual and at first ostensibly counterintuitive policies may appear, like short-selling a stock with a higher rate of return to earn lower interest, or borrowing at a higher rate to invest in a stock with lower rate of return. This is in sharp contrast with the unrestricted case, first studied in Hipp and Plum (2000), or with the case of no shortselling and no borrowing studied in Azcue and Muler (2009).

ABSTRACT This study investigates the degree of economic inefficiency of the current institutional arrangements for surface and ground water management in meeting urban water demand in the Jakarta region. A numerical model of integrated surface and ground water management is developed using GAMS (General Algebraic Modelling System) software. The model maximizes the net present value of social benefits from piped water and ground water consumption across all users over time from 1999 to 2025. Four policy scenarios are examined: the status quo, the social planner's solution, and two ground water pumping quota scenarios: an aggregate ground water pumping quota and a partial quota applied to commercial and industrial users. Three variations in each policy scenario are considered: investment in water infrastructure of the Jakarta water enterprise (PAM Jaya), water demand growth, and discount rates. The status quo, depending on the investment option, the growth of water demand, and the discount rate, results in a 7.4 to 47.8 percent loss in economic efficiency relative to the social planner's solution. The partial quota is the most feasible, applicable, and manageable scenario. The optimal investment option could increase the volume of piped water supply and reduce the cost of water production. The volume of water delivery could increase by up to 156 percent, but it implies only a 35 percent increase in the surface raw water demands above the current level. However, it does not significantly reduce cumulative ground water extraction over the time period considered.

We analyze the problem of real optimal asset allocation for a pension fund maximising the expected CRRA utility of its real disposable wealth. The financial horizon of the analysis coincides with the random death time of a representative subscriber. We consider a very general setting where there exists a stochastic investment opportunity set together with stochastic contributions and pensions and