International investment with exchange rate risk. Issue 2 (4th March 2021)

• Record Type: Journal Article
• Authors: Fei, Chen; Fei, Weiyin; Rui, Yayun; Yan, Litan
• Is Part Of: Asia-Pacific journal of accounting & economics. Volume 28:Issue 2(2021)
• Page Start: 225
• Page End: 241
• Publication Date: 2021-03-04
• Subjects: Exchange rate risk -- international investment -- optimal portfolio -- HJB equation -- stochastic calculus; Accounting -- Periodicals; Accounting -- Pacific Area -- Periodicals; Economics -- Periodicals; Pacific Area -- Economic conditions -- Periodicals; 657
• DOI: 10.1080/16081625.2019.1569539
• Languages: English
• ISSNs: 1608-1625

Abstract

ABSTRACT: This paper developed an optimal intertemporal asset allocation strategy of a multinational corporation, which invests in foreign market under exchange rate risk. First, through Itô formula, the international investor's wealth dynamics denominated in domestic currency is obtained. Then, to maximize the expected utility of the intertemporal consumption and the terminal wealth, the optimal consumption and investment strategies are obtained through the Hamilton-Jacobi-Bellman (HJB) equation. Finally, based on the numerical simulations, we provide an analysis of the impact of varying the relative risk aversion, the investment horizon and the exchange rate volatility on the optimal investment strategies of the investor.