Portfolio optimization in stochastic markets

U. Çakmak and S. Özekici ()

Mathematical Methods of Operations Research, 2006, vol. 63, issue 1, 168 pages

Abstract: We consider a multiperiod mean-variance model where the model parameters change according to a stochastic market. The mean vector and covariance matrix of the random returns of risky assets all depend on the state of the market during any period where the market process is assumed to follow a Markov chain. Dynamic programming is used to solve an auxiliary problem which, in turn, gives the efficient frontier of the mean-variance formulation. An explicit expression is obtained for the efficient frontier and an illustrative example is given to demonstrate the application of the procedure. Copyright Springer-Verlag 2006

Keywords: Portfolio optimization; Stochastic market; Dynamic programming; Mean-variance models; Efficient frontier (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (18)

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DOI: 10.1007/s00186-005-0020-x

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