Mean-variance portfolio selection with a stochastic cash flow in a Markov-switching jump-diffusion market (Q378275)

The author considers two assets traded continuously within a trade horizon \([0,T]\) in a market driven by two-dimensional Brownian motion. One asset is a bank account and the other asset is a stock. The price process of the assets depends on the market states. Market states are modelled by a continuous-time Markov chain independent of the Brownian motion. Thus, ``the stock price and the stochastic cash flow follow a Markov-modulated Lévy process and a Markov-modulated Brownian motion with drift, respectively. The stochastic cash flow can be explained as the stochastic income or liability of the investors during the investment process. The existence of optimal solutions is analyzed, and the optimal strategy and the efficient frontier are derived in closed form by the Lagrange multiplier technique and the linear quadratic technique.''