Dynamic Mean-Variance Model with Borrowing Constraint under the Constant Elasticity of Variance Process
This paper studies a continuous-time dynamic mean-variance portfolio selection problem with the constraint of a higher borrowing rate, in which stock price is governed by a constant elasticity of variance (CEV) process. Firstly, we apply Lagrange duality theorem to change an original mean-variance p...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Wiley
2013-01-01
|
| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2013/348059 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | This paper studies a continuous-time dynamic mean-variance portfolio selection problem with the constraint of a higher borrowing rate, in which stock price is governed by a constant elasticity of variance (CEV)
process. Firstly, we apply Lagrange duality theorem to change an original mean-variance problem into an equivalent optimization one. Secondly, we use dynamic programming principle to get the Hamilton-Jacobi-Bellman
(HJB) equation for the value function, which is a more sophisticated nonlinear second-order partial differential
equation. Furthermore, we use Legendre transform and dual theory to transform the HJB equation into its dual one.
Finally, the closed-form solutions to the optimal investment strategy and efficient frontier are derived by applying
variable change technique. |
|---|---|
| ISSN: | 1110-757X 1687-0042 |