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

DOI10.1016/J.AUTOMATICA.2022.110629zbMATH Open1504.91300arXiv2205.08743OpenAlexW4280509435MaRDI QIDQ2097791FDOQ2097791

Authors: Yanyan Li 

Publication date: 14 November 2022

Published in: Automatica (Search for Journal in Brave)

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.

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

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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)

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