Optimal dynamic portfolio selection: multiperiod mean-variance formulation. (English) Zbl 0997.91027

Li, Duan; Ng, Wan-Lung

Math. Finance 10, No. 3, 387-406 (2000).

This paper studies quadratic portfolio selection problems in a model with finite discrete time and for assets with independent returns whose mean vectors and covariance matrices are known. It gives explicit feedback formulae (in terms of current wealth) for the optimal strategies under several mean-variance related criteria. This is possible because due to the independence assumption, the associated linear-quadratic control problem can be solved explicitly. The paper also gives necessary optimality conditions for maximizing utility from the mean and variance of final wealth, and concludes with a few numerical examples. For related work with a focus more on stochastic optimisation, see also M. C. Steinbach [SIAM Rev. 43, No. 1, 31–85 (2001; Zbl 1049.91086)].

Reviewer: Martin Schweizer (München)

MSC:

91G10	Portfolio theory
49N10	Linear-quadratic optimal control problems
93E24	Least squares and related methods for stochastic control systems
90C39	Dynamic programming

Keywords:

multiperiod portfolio selection; mean-variance criteria; linear-quadratic control

Citations:

Zbl 1049.91086