Continuous-time mean-variance portfolio selection under the CEV process

DOI10.1155/2014/363046MaRDI QIDQ1723934zbMATH OpenOpenAlexWikidataFDO

Authors Hui-qiang Ma

Publication date 14 February 2019

Published in Abstract and Applied Analysis (Search for Journal in Brave)

Copyright license Creative Commons Attribution 3.0 Unported

Full work available at URL https://doi.org/10.1155/2014/363046

zbMATH Keywords

convex program problemmean-variance portfolio selectionstochastic optimal control

Mathematics Subject Classification ID

Convex programming (90C25) Portfolio theory (91G10) Optimal stochastic control (93E20)

Review text

Summary: We consider a continuous-time mean-variance portfolio selection model when stock price follows the constant elasticity of variance (CEV) process. The aim of this paper is to derive an optimal portfolio strategy and the efficient frontier. The mean-variance portfolio selection problem is formulated as a linearly constrained convex program problem. By employing the Lagrange multiplier method and stochastic optimal control theory, we obtain the optimal portfolio strategy and mean-variance efficient frontier analytically. The results show that the mean-variance efficient frontier is still a parabola in the mean-variance plane, and the optimal strategies depend not only on the total wealth but also on the stock price. Moreover, some numerical examples are given to analyze the sensitivity of the efficient frontier with respect to the elasticity parameter and to illustrate the results presented in this paper. The numerical results show that the price of risk decreases as the elasticity coefficient increases.

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Cited in

(2)

• Mean-variance portfolio selection under a constant elasticity of variance model
• Dynamic mean-variance model with borrowing constraint under the constant elasticity of variance process

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