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2016 Viscosity Solution of Mean-Variance Portfolio Selection of a Jump Markov Process with No-Shorting Constraints
Moussa Kounta
J. Appl. Math. 2016: 1-14 (2016). DOI: 10.1155/2016/4543298

Abstract

We consider the so-called mean-variance portfolio selection problem in continuous time under the constraint that the short-selling of stocks is prohibited where all the market coefficients are random processes. In this situation the Hamilton-Jacobi-Bellman (HJB) equation of the value function of the auxiliary problem becomes a coupled system of backward stochastic partial differential equation. In fact, the value function V often does not have the smoothness properties needed to interpret it as a solution to the dynamic programming partial differential equation in the usual (classical) sense; however, in such cases V can be interpreted as a viscosity solution. Here we show the unicity of the viscosity solution and we see that the optimal and the value functions are piecewise linear functions based on some Riccati differential equations. In particular we solve the open problem posed by Li and Zhou and Zhou and Yin.

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Moussa Kounta. "Viscosity Solution of Mean-Variance Portfolio Selection of a Jump Markov Process with No-Shorting Constraints." J. Appl. Math. 2016 1 - 14, 2016. https://doi.org/10.1155/2016/4543298

Information

Received: 30 December 2015; Accepted: 15 March 2016; Published: 2016
First available in Project Euclid: 15 June 2016

zbMATH: 07037275
MathSciNet: MR3500858
Digital Object Identifier: 10.1155/2016/4543298

Rights: Copyright © 2016 Hindawi

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