Multi-time state mean-variance model in continuous time

DOI10.1051/COCV/2021086MaRDI QIDQ5016146zbMATH OpenOpenAlexFDO

Authors Shuzhen Yang

Publication date 13 December 2021

Published in ESAIM: Control, Optimisation and Calculus of Variations (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/1912.01793

zbMATH Keywords

mean-variancemulti-time statestochastic optimal control

Mathematics Subject Classification ID

Portfolio theory (91G10) Optimal stochastic control (93E20)

Abstract: In the continuous time mean-variance model, we want to minimize the variance (risk) of the investment portfolio with a given mean at terminal time. However, the investor can stop the investment plan at any time before the terminal time. To solve this kind of problem, we consider to minimize the variances of the investment portfolio at multi-time state. The advantage of this multi-time state mean-variance model is that we can minimize the risk of the investment portfolio along the investment period. To obtain the optimal strategy of the multi-time state mean-variance model, we introduce a sequence of Riccati equations which are connected by a jump boundary condition. Based on this sequence Riccati equations, we establish the relationship between the means and variances of this multi-time state mean-variance model. Furthermore, we use an example to verify that minimizing the variances of the multi-time state can affect the average of Maximum-Drawdown of the investment portfolio.

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Cited in

(1)

• A varying terminal time mean-variance model

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