Affiliation:
1. Department of Mathematics and Statistical Sciences, Botswana International University of Science and Technology, Palapye, Botswana
Abstract
We consider a problem of maximizing the utility of an agent who invests in a stock and a money market account incorporating proportional transaction costs
and foreign exchange rate fluctuations. Assuming a HARA utility function
for all
,
,
, we suggest an approach of determining the value function. Contrary to fears associated with exchange rate fluctuations, our results show that these fluctuations can bring about tangible benefits in one’s wealth. We quantify the level of these benefits. We also present an example which illustrates an investment strategy of our agent.
Funder
Botswana International University of Science and Technology