Investment strategies and compensation of a mean–variance optimizing fund manager

Georgios Aivaliotis and Jan Palczewski

European Journal of Operational Research, 2014, vol. 234, issue 2, 561-570

Abstract: This paper introduces a general continuous-time mathematical framework for solution of dynamic mean–variance control problems. We obtain theoretical results for two classes of functionals: the first one depends on the whole trajectory of the controlled process and the second one is based on its terminal-time value. These results enable the development of numerical methods for mean–variance problems for a pre-determined risk-aversion coefficient. We apply them to study optimal trading strategies pursued by fund managers in response to various types of compensation schemes. In particular, we examine the effects of continuous monitoring and scheme’s symmetry on trading behavior and fund performance.

Keywords: Mean–variance; Continuous-time stochastic control; Viscosity solutions; Investment strategy; Managerial compensation (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:234:y:2014:i:2:p:561-570

DOI: 10.1016/j.ejor.2013.04.038

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