Unified Framework of Mean-Field Formulations for Optimal Multi-period Mean-Variance Portfolio Selection

Xiangyu Cui, Xun Li and Duan Li

Papers from arXiv.org

Abstract: The classical dynamic programming-based optimal stochastic control methods fail to cope with nonseparable dynamic optimization problems as the principle of optimality no longer applies in such situations. Among these notorious nonseparable problems, the dynamic mean-variance portfolio selection formulation had posted a great challenge to our research community until recently. A few solution methods, including the embedding scheme, have been developed in the last decade to solve the dynamic mean-variance portfolio selection formulation successfully. We propose in this paper a novel mean-field framework that offers a more efficient modeling tool and a more accurate solution scheme in tackling directly the issue of nonseparability and deriving the optimal policies analytically for the multi-period mean-variance-type portfolio selection problems.

Date: 2013-03
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