Optimal Investment Strategy under Stochastic Interest Rates

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dc.creatorMtunya, Adeline Peter
dc.creatorNgare, Philip
dc.creatorNkansah-Gyekye, Yaw
dc.date2018-04-13T17:37:10Z
dc.date2018-04-13T17:37:10Z
dc.date2017-05-19
dc.date.accessioned2018-04-18T12:09:53Z
dc.date.available2018-04-18T12:09:53Z
dc.descriptionWe study how firms’ management can make effective investment decision under the influence of random interest rates. We define the threshold interest rate value below which investment can be effectively done and above which investment is not optimal. We use a stochastic differential equation with alternating drift to find the optimal investment policy under stochastic interest rate. One of our results indicated that, the optimal condition for investment expansion is when the interest rate is low and the profit level is high. Also, there exists the threshold interest rate value which forms the basis for investment decision of a company. Moreover, we revealed that it is not optimal for the managers to plan for firm’s business expansion when is already making extremely high profits. At the end we were able to confirm that business is generally more stable when the interest rates are lower than those when they are high. Since firms in emerging economies suffer most from interest rate fluctuations, they need more effective investment strategies. Monetary policy makers of such economies need to ensure low interest rates in order to promote firms’ investment and therefore boost the general economy.
dc.identifierMtunya, A.P., Ngare, P. and Nkansah-Gyekye, Y. (2017) Optimal Investment Strategy under Stochastic Interest Rates. Journal of Mathematical Finance , 7, 319-332. https://doi.org/10.4236/jmf.2017.72017
dc.identifierhttp://hdl.handle.net/20.500.11810/4679
dc.identifier.urihttp://hdl.handle.net/20.500.11810/4679
dc.languageen
dc.publisherJournal of Mathematical Finance
dc.subjectResearch Subject Categories::MATHEMATICS
dc.subjectFINANCIAL MATHEMATICS
dc.subjectMATHEMATICAL MODELLING
dc.subjectSTOCHASTIC CONTROL
dc.titleOptimal Investment Strategy under Stochastic Interest Rates
dc.typeJournal Article

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