DYNAMIC PROGRAMMING MODEL FOR OPTIMAL INVESTMENT STRATEGY

Author: Mmagu, Callistus Chikelue
Department: Computer Science.
Affiliation: Nnamdi Azikiwe University, Awka

This study is aimed at formulating a dynamic programming model for optimal investment strategy which incorporates uncertainty in a probabilistic manner. An iteration technique of the dynamic programming is used to solve the model. The choice of Dynamic Programming is as a result of its recursive nature, whereby the problem is divided into multi-stages, with the result of each stage being used as an input into the next stage and so on, until the problem is solved. The study proves that the fundamental operations research tools of dynamic programming have wide application in the financial engineering especially now that there is a wide availability of powerful computing technology. This software package enables decision makers to critically analyze an investment opportunity before committing the firm’s long term assets to the project. Its use enables investors to minimize severity and frequency of risk in a period of uncertainty.

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