# Asset Optimization Problem In A Financial Institution

### Abstract

This paper looked at how a financial institution could optimally allocate its total wealth among three assets namely; treasury, security and loan in a stochastic interest rate setting. The optimal investment strategy was derived through the application of a stochastic optimization theory for the case of constant relative risk aversion (CRRA) utility function. Next,numerical examples using published data obtained from CBN statistical bulletin and Nigeria Stock Exchange Fact Book was presented to illustrate the dynamics of the optimal investment strategy. From the results it was seen that the optimal investment strategy was to shift the financial institution investment away from the risky assets (security and loan) toward the riskless asset (treasury). Also the investment in security and loan was observed to be more risky as the volatility increased.The results further showed that there is increased investment in the risky assets as the investor became less risk averse.

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*International Journal of Mathematical Analysis and Optimization: Theory and Applications*,

*2019*(2), 581 - 591. Retrieved from http://jmtcs.unilag.edu.ng/index.php/ijmao/article/view/562