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International investment with exchange rate risk

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Listed:
  • Chen Fei
  • Weiyin Fei
  • Yayun Rui
  • Litan Yan

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.

Suggested Citation

  • Chen Fei & Weiyin Fei & Yayun Rui & Litan Yan, 2021. "International investment with exchange rate risk," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(2), pages 225-241, March.
    • Handle: RePEc:taf:raaexx:v:28:y:2021:i:2:p:225-241
    DOI: 10.1080/16081625.2019.1569539
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    Cited by:

    1. Wei Wang & Qianyan Li & Quan Li & Song Xu, 2023. "Robust Optimal Investment Strategies with Exchange Rate Risk and Default Risk," Mathematics, MDPI, vol. 11(6), pages 1-17, March.

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