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http://hdl.handle.net/10397/96203
Title: | Better than pre-committed optimal mean-variance policy in a jump diffusion market | Authors: | Shi, Y Li, X Cui, X |
Issue Date: | Jun-2017 | Source: | Mathematical methods of operations research, June 2017, v. 85, no. 3, p. 327-347 | Abstract: | Dynamic mean-variance investment model can not be solved by dynamic programming directly due to the nonseparable structure of variance minimization problem. Instead of adopting embedding scheme, Lagrangian duality approach or mean-variance hedging approach, we transfer the model into mean field mean-variance formulation and derive the explicit pre-committed optimal mean-variance policy in a jump diffusion market. Similar to multi-period setting, the pre-committed optimal mean-variance policy is not time consistent in efficiency. When the wealth level of the investor exceeds some pre-given level, following pre-committed optimal mean-variance policy leads to irrational investment behaviors. Thus, we propose a semi-self-financing revised policy, in which the investor is allowed to withdraw partial of his wealth out of the market. And show the revised policy has a better investment performance in the sense of achieving the same mean-variance pair as pre-committed policy and receiving a nonnegative free cash flow stream. | Keywords: | Jump diffusion market Mean field approach Pre-committed optimal mean-variance policy Semi-self-financing revised policy Time consistency in efficiency |
Publisher: | Springer | Journal: | Mathematical methods of operations research | ISSN: | 1432-2994 | EISSN: | 1432-5217 | DOI: | 10.1007/s00186-017-0572-6 | Rights: | © Springer-Verlag Berlin Heidelberg 2017 This version of the article has been accepted for publication, after peer review (when applicable) and is subject to Springer Nature’s AM terms of use(https://www.springernature.com/gp/open-research/policies/accepted-manuscript-terms), but is not the Version of Record and does not reflect post-acceptance improvements, or any corrections. The Version of Record is available online at: http://dx.doi.org/10.1007/s00186-017-0572-6. |
Appears in Collections: | Journal/Magazine Article |
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