Multi-period mean-variance portfolio selection with stochastic interest rate and uncontrollable liability

Haixiang Yao, Zhongfei Li and Duan Li

European Journal of Operational Research, 2016, vol. 252, issue 3, 837-851

Abstract: While the literature on dynamic portfolio selection with stochastic interest rates only confines its investigation to the continuous-time setting up to now, this paper studies a multi-period mean-variance portfolio selection problem with a stochastic interest rate, where the movement of the interest rate is governed by the discrete-time Vasicek model. Invoking dynamic programming approach and the Lagrange duality theory, we derive the analytical expressions for both the efficient investment strategy and the efficient mean-variance frontier of the model formulation. We then extend our model to the situation with an uncontrollable liability.

Keywords: Stochastic interest rate; Multi-period mean-variance portfolio selection; Uncontrollable liability; Dynamic programming; Lagrangian duality (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:252:y:2016:i:3:p:837-851

DOI: 10.1016/j.ejor.2016.01.049

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