Continuous-time portfolio selection with liability: Mean-variance model and stochastic LQ approach

Shuxiang Xie, Zhongfei Li and Shouyang Wang

Insurance: Mathematics and Economics, 2008, vol. 42, issue 3, 943-953

Abstract: In this paper we formulate a continuous-time mean-variance portfolio selection model with multiple risky assets and one liability in an incomplete market. The risky assets' prices are governed by geometric Brownian motions while the liability evolves according to a Brownian motion with drift. The correlations between the risky assets and the liability are considered. The objective is to maximize the expected terminal wealth while minimizing the variance of the terminal wealth. We derive explicitly the optimal dynamic strategy and the mean-variance efficient frontier in closed forms by using the general stochastic linear-quadratic (LQ) control technique. Several special cases are discussed and a numerical example is also given.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-6687(07)00130-8
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:42:y:2008:i:3:p:943-953

Access Statistics for this article

Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

More articles in Insurance: Mathematics and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().