Mean-variance portfolio selection with dynamic attention behavior in a hidden Markov model

DOI10.1016/J.AUTOMATICA.2022.110629MaRDI QIDQ2097791zbMATH OpenOpenAlexFDO

Authors Yanyan Li

Publication date 14 November 2022

Published in Automatica (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2205.08743

zbMATH Keywords

hidden Markov modelMarkov chain approximationmean-variance portfolio selectionextended HJB equationdynamic attention behavior

Mathematics Subject Classification ID

Markov processes: estimation; hidden Markov models (62M05) Applications of statistics to actuarial sciences and financial mathematics (62P05) Portfolio theory (91G10)

Abstract: In this paper, we study closed-loop equilibrium strategies for mean-variance portfolio selection problem in a hidden Markov model with dynamic attention behavior. In addition to the investment strategy, the investor's attention to news is introduced as a control of the accuracy of the news signal process. The objective is to find equilibrium strategies by numerically solving an extended HJB equation by using Markov chain approximation method. An iterative algorithm is constructed and its convergence is established. Numerical examples are also provided to illustrate the results.

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