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Stochastic Analysis of the Effect of Asset Prices to a Single Economic Investor
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Stochastic Analysis of the Effect of Asset Prices to a Single Economic Investor

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Abstract:

In this paper, we propose a single economic investor whose asset follows a geometric Brownian motion process. Our objective therefore is to obtain the fair price and the present market value of the asset with an infinitely horizon expected discounted investment output. We apply dynamic programming principle to derive the Hamilton Jacobi Bellman (HJB)-equation associated with the problem which is found to be equivalent to the famous Black-Scholes Model under no risk neutrality. In addition, for a complete market under equilibrium, we obtained the value of the present asset with risk neutrality and its fair price.

Info:

Periodical:
Bulletin of Mathematical Sciences and Applications (Volume 17)
Pages:
33-39
DOI:
https://doi.org/10.18052/www.scipress.com/BMSA.17.33
Citation:
E. Ekuma-Okereke et al., "Stochastic Analysis of the Effect of Asset Prices to a Single Economic Investor", Bulletin of Mathematical Sciences and Applications, Vol. 17, pp. 33-39, 2016
Online since:
November 2016
Authors:
Enyinnaya Ekuma-Okereke, Joseph Thomas Eghwerido, E. Efe-Eyefia, Samuel Zelibe
Keywords:
Dynamic Programming Principle, Geometric Brownian Motion, Risk Neutrality, Stochastic Control
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Distribution:
Open Access

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This work is licensed under a
Creative Commons Attribution 4.0 International License

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