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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.
- 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