Continuous-Time Mean-Variance Portfolio Selection with Constraints on Wealth and Portfolio

Xun Li; Zuo Quan Xu

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arXiv · 1507.06850

Continuous-Time Mean-Variance Portfolio Selection with Constraints on Wealth and Portfolio

Xun Li·Zuo Quan Xu

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Abstract

We consider continuous-time mean-variance portfolio selection with bankruptcy prohibition under convex cone portfolio constraints. This is a long-standing and difficult problem not only because of its theoretical significance, but also for its practical importance. First of all, we transform the above problem into an equivalent mean-variance problem with bankruptcy prohibition without portfolio constraints. The latter is then treated using martingale theory. Our findings indicate that we can directly present the semi-analytical expressions of the pre-committed efficient mean-variance policy without a viscosity solution technique but within a general framework of the cone portfolio constraints. The numerical simulation also sheds light on results established in this paper.

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Xun Li, Zuo Quan Xu. 2015-07-24. Continuous-Time Mean-Variance Portfolio Selection with Constraints on Wealth and Portfolio. https://arxiv.org/abs/1507.06850

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