Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Standard

Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility. / Zhang, Yumo.

I: Risks, Bind 9, Nr. 4, 61, 2021.

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Harvard

Zhang, Y 2021, 'Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility', Risks, bind 9, nr. 4, 61. https://doi.org/10.3390/risks9040061

APA

Zhang, Y. (2021). Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility. Risks, 9(4), [61]. https://doi.org/10.3390/risks9040061

Vancouver

Zhang Y. Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility. Risks. 2021;9(4). 61. https://doi.org/10.3390/risks9040061

Author

Zhang, Yumo. / Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility. I: Risks. 2021 ; Bind 9, Nr. 4.

Bibtex

@article{a02b48408e3643f180da6f73b2058db5,
title = "Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility",
abstract = "This paper considers a mean-variance portfolio selection problem when the stock price has a 3/2 stochastic volatility in a complete market. Specifically, we assume that the stock price and the volatility are perfectly negative correlated. By applying a backward stochastic differential equation (BSDE) approach, closed-form expressions for the statically optimal (time-inconsistent) strategy and the value function are derived. Due to time-inconsistency of mean variance criterion, a dynamic formulation of the problem is presented. We obtain the dynamically optimal (time-consistent) strategy explicitly, which is shown to keep the wealth process strictly below the target (expected terminal wealth) before the terminal time. Finally, we provide numerical studies to show the impact of main model parameters on the efficient frontier and illustrate the differences between the two optimal wealth processes.",
keywords = "3/2 stochastic volatility, Backward stochastic differential equation, Complete market, Dynamic optimality, Mean-variance portfolio selection",
author = "Yumo Zhang",
year = "2021",
doi = "10.3390/risks9040061",
language = "English",
volume = "9",
journal = "Risks",
issn = "2227-9091",
publisher = "MDPI",
number = "4",

}

RIS

TY - JOUR

T1 - Dynamic optimal mean-variance portfolio selection with a 3/2 stochastic volatility

AU - Zhang, Yumo

PY - 2021

Y1 - 2021

N2 - This paper considers a mean-variance portfolio selection problem when the stock price has a 3/2 stochastic volatility in a complete market. Specifically, we assume that the stock price and the volatility are perfectly negative correlated. By applying a backward stochastic differential equation (BSDE) approach, closed-form expressions for the statically optimal (time-inconsistent) strategy and the value function are derived. Due to time-inconsistency of mean variance criterion, a dynamic formulation of the problem is presented. We obtain the dynamically optimal (time-consistent) strategy explicitly, which is shown to keep the wealth process strictly below the target (expected terminal wealth) before the terminal time. Finally, we provide numerical studies to show the impact of main model parameters on the efficient frontier and illustrate the differences between the two optimal wealth processes.

AB - This paper considers a mean-variance portfolio selection problem when the stock price has a 3/2 stochastic volatility in a complete market. Specifically, we assume that the stock price and the volatility are perfectly negative correlated. By applying a backward stochastic differential equation (BSDE) approach, closed-form expressions for the statically optimal (time-inconsistent) strategy and the value function are derived. Due to time-inconsistency of mean variance criterion, a dynamic formulation of the problem is presented. We obtain the dynamically optimal (time-consistent) strategy explicitly, which is shown to keep the wealth process strictly below the target (expected terminal wealth) before the terminal time. Finally, we provide numerical studies to show the impact of main model parameters on the efficient frontier and illustrate the differences between the two optimal wealth processes.

KW - 3/2 stochastic volatility

KW - Backward stochastic differential equation

KW - Complete market

KW - Dynamic optimality

KW - Mean-variance portfolio selection

UR - http://www.scopus.com/inward/record.url?scp=85103896253&partnerID=8YFLogxK

U2 - 10.3390/risks9040061

DO - 10.3390/risks9040061

M3 - Journal article

AN - SCOPUS:85103896253

VL - 9

JO - Risks

JF - Risks

SN - 2227-9091

IS - 4

M1 - 61

ER -

ID: 261383048