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Dynamic Mean-Variance Model with Borrowing Constraint under the Constant Elasticity of Variance Process
Joint Authors
Source
Journal of Applied Mathematics
Issue
Vol. 2013, Issue 2013 (31 Dec. 2013), pp.1-8, 8 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2013-11-17
Country of Publication
Egypt
No. of Pages
8
Main Subjects
Abstract EN
This paper studies a continuous-time dynamic mean-variance portfolio selection problem with the constraint of a higher borrowing rate, in which stock price is governed by a constant elasticity of variance (CEV) process.
Firstly, we apply Lagrange duality theorem to change an original mean-variance problem into an equivalent optimization one.
Secondly, we use dynamic programming principle to get the Hamilton-Jacobi-Bellman (HJB) equation for the value function, which is a more sophisticated nonlinear second-order partial differential equation.
Furthermore, we use Legendre transform and dual theory to transform the HJB equation into its dual one.
Finally, the closed-form solutions to the optimal investment strategy and efficient frontier are derived by applying variable change technique.
American Psychological Association (APA)
Chang, Hao& Rong, Xi-min. 2013. Dynamic Mean-Variance Model with Borrowing Constraint under the Constant Elasticity of Variance Process. Journal of Applied Mathematics،Vol. 2013, no. 2013, pp.1-8.
https://search.emarefa.net/detail/BIM-464695
Modern Language Association (MLA)
Chang, Hao& Rong, Xi-min. Dynamic Mean-Variance Model with Borrowing Constraint under the Constant Elasticity of Variance Process. Journal of Applied Mathematics No. 2013 (2013), pp.1-8.
https://search.emarefa.net/detail/BIM-464695
American Medical Association (AMA)
Chang, Hao& Rong, Xi-min. Dynamic Mean-Variance Model with Borrowing Constraint under the Constant Elasticity of Variance Process. Journal of Applied Mathematics. 2013. Vol. 2013, no. 2013, pp.1-8.
https://search.emarefa.net/detail/BIM-464695
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-464695