Optimal Dynamic Portfolio Selection Optimal Dynamic Portfolio Selection

Duan Li

Department of Systems Engineering and Engineering Management, Chinese University of Hong Kong (dli@se.cuhk.edu.hk)

Abstract

The mean-variance approach pioneered by Markowitz has been extended in this research to a multi-period mean-variance formulation to further capture the spirit of risk management in dynamic investment problems. An embedding solution scheme has been developed for solving the resulting stochastic nonseparable optimal control problem. Specifically, the following two major research results have been achieved: 1) analytical expression of the mean-variance efficient frontier for multi-period portfolio selection problems; and 2) an efficient algorithm in finding optimal solutions for utility functions of the expected value and the variance of the terminal wealth. One other application of this derived multi-period mean-variance framework is an extension of Roy's safety-first approach to safety first dynamic portfolio selection.


File translated from TEX by TTH, version 1.94.
On 18 May 1999, 11:13.