Dynamic mean-variance portfolio selection with exogenous liability and borrowing constraint

Author

Bin Chen ; Hui-qiang Ma ; Nan-jing Huang

Author_Institution

Dept. of Math., Sichuan Univ., Chengdu, China

fYear

2013

fDate

26-28 July 2013

Firstpage

8315

Lastpage

8320

Abstract

In this paper, we consider a dynamic mean-variance model for asset and liability management with borrowing constraint. The purpose of this paper is to derive an optimal portfolio strategy and an efficient frontier. Since the problem can be formulated as a stochastic piecewise linear-quadratic (PLQ) control problem, we employ the Hamilton-Jacobi-Bellman (HJB) equation and the Lagrangian duality theory to solve this problem. A numerical example is given to demonstrate our results and show the impact of borrowing constraint on the efficient frontier.

Keywords

duality (mathematics); investment; linear quadratic control; piecewise linear techniques; stochastic processes; HJB equation; Hamilton-Jacobi-Bellman equation; Lagrangian duality theory; asset management; borrowing constraint; dynamic mean-variance portfolio selection; efficient frontier; exogenous liability; liability management; optimal portfolio strategy; stochastic PLQ control problem; stochastic piecewise linear-quadratic control problem; Differential equations; Economic indicators; Equations; Mathematical model; Optimization; Portfolios; Stochastic processes; Asset and liability management; Borrowing rate; Efficient frontier; HJB equation; Mean-variance portfolio selection; Stochastic PLQ control;

fLanguage

English

Publisher

ieee

Conference_Titel

Control Conference (CCC), 2013 32nd Chinese

Conference_Location

Xi´an

Type

conf

Filename

6640909