Mean–Variance portfolio selection in presence of infrequently traded stocks

Rosella Castellano and Roy Cerqueti

European Journal of Operational Research, 2014, vol. 234, issue 2, 442-449

Abstract: This paper deals with a mean–variance optimal portfolio selection problem in presence of risky assets characterized by low-frequency trading and, therefore, low liquidity. To model the dynamics of illiquid assets, we introduce pure-jump processes. This leads to the development of a portfolio selection model in a mixed discrete/continuous time setting. We pursue the twofold scope of analyzing and comparing either long-term investment strategies as well as short-term trading rules. The theoretical model is analyzed by applying extensive Monte Carlo experiments, in order to provide useful insights from a financial perspective.

Keywords: Markowitz’ model; Thin stocks; Mean–variance utility function; Jump-diffusion dynamics; Stochastic control problem; Monte Carlo (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:234:y:2014:i:2:p:442-449

DOI: 10.1016/j.ejor.2013.04.024

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