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Continuous-time mean-variance portfolio selection: a stochastic LQ framework,” (2000)
| Venue: | Applied Mathematics and Optimization, |
| Citations: | 46 - 9 self |
BibTeX
@ARTICLE{Zhou00continuous-timemean-variance,
author = {X Y Zhou and D Li and X Y Zhou and D Li},
title = {Continuous-time mean-variance portfolio selection: a stochastic LQ framework,”},
journal = {Applied Mathematics and Optimization,},
year = {2000},
pages = {pp.}
}
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Abstract
Abstract. This paper is concerned with a continuous-time mean-variance portfolio selection model that is formulated as a bicriteria optimization problem. The objective is to maximize the expected terminal return and minimize the variance of the terminal wealth. By putting weights on the two criteria one obtains a single objective stochastic control problem which is however not in the standard form due to the variance term involved. It is shown that this nonstandard problem can be "embedded" into a class of auxiliary stochastic linear-quadratic (LQ) problems. The stochastic LQ control model proves to be an appropriate and effective framework to study the mean-variance problem in light of the recent development on general stochastic LQ problems with indefinite control weighting matrices. This gives rise to the efficient frontier in a closed form for the original portfolio selection problem.
