A Divestment Model: Migration to Green Energy Investment Portfolio Concept

Abstract

In a targeted terminal wealth generated by bond and risky assets, where the proportion of a risky asset is gradually being phased down, we propose a divestment model in a risky asset compensated by growth in a bond (insurance). The model includes the phase-down rate of the risky asset, c(t), the variable proportion, π(t), in a risky asset and the interest rate, r, of the bond. To guide the growth of the total wealth in this study, we compared it to the Øksendal and Sulem (Backward Stochastic Differential Equations and Risk Measures (2019)) total wealth for which c(t)=0, and π(t) is a constant. We employed the Fokker–Planck equation to find the variable moment, π(t), and the associated variance. We proved the existence and uniqueness of the first moment by Feller’s criteria. We have found a pair (c*(t),r*) for each π(t), which guarantees a growing total wealth. We have addressed the question whether this pair can reasonably be achieved to ensure an acceptable phase-down rate at a financially achievable interest rate, r*.