A mean-field formulation for the mean-variance control of discrete-time linear systems with multiplicative noises

Fabio Barbieri and Oswaldo L. V. Costa

International Journal of Systems Science, 2020, vol. 51, issue 10, 1825-1846

Abstract: This paper considers the stochastic optimal control of a multi-period mean-variance trade-off performance criterion with and without constraints for discrete-time linear systems subject to multiplicative noises. We adopt a mean-field approach to tackle the problem and obtain a solution for the unconstrained case in terms of a Riccati-like difference equation. From this general result, we obtain a sufficient condition for a closed-form solution for one of the constrained problems considered in the paper. When particularised to the portfolio selection problem, we show that our results retrieve some of the results available in the literature. We conclude the paper by illustrating the obtained optimal controls with a multi-period portfolio selection problem where we minimise the sum of the mean-variance trade-off costs of a portfolio against a benchmark along the time.

Date: 2020
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DOI: 10.1080/00207721.2020.1780340

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