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Mean-variance portfolio selection with non-negative state-dependent risk aversion.

Mean-variance portfolio selection with non-negative state-dependent risk aversion.

Authors :
Wang, Tianxiao
Jin, Zhuo
Wei, Jiaqin
Source :
Quantitative Finance. Apr2021, Vol. 21 Issue 4, p657-671. 15p.
Publication Year :
2021

Abstract

In this paper, we study the open-loop equilibrium strategy for mean-variance portfolio selection problem under the assumption that the risk tolerance of the investor is a non-negative and non-linear function of his/her wealth. We derive a sufficient and necessary condition for the existence and uniqueness of an open-loop equilibrium strategy via a coupled forward-backward stochastic differential equation. To the best of our knowledge, such an equation appears for the first time in the literature. The well-posedness of this equation is established by merely imposing Lipschitz condition on the risk tolerance. We also present two examples with non-monotone risk tolerances, where some interesting findings are revealed and the equilibrium strategies are obtained explicitly and numerically. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
14697688
Volume :
21
Issue :
4
Database :
Academic Search Index
Journal :
Quantitative Finance
Publication Type :
Academic Journal
Accession number :
149223828
Full Text :
https://doi.org/10.1080/14697688.2020.1787492