Open-loop equilibrium strategy for mean–variance portfolio problem under stochastic volatility

Tingjin Yan; Hoi Ying Wong

doi:10.1016/j.automatica.2019.05.044

Open-loop equilibrium strategy for mean–variance portfolio problem under stochastic volatility

Tingjin Yan
, Hoi Ying Wong^*

^*Corresponding author for this work

Chinese University of Hong Kong

Research output: Contribution to journal › Article › peer-review

27 Scopus citations

Abstract

We formulate the open-loop control framework for time-consistent mean–variance (TCMV) portfolio problems in incomplete markets with stochastic volatility (SV). We offer the existence and uniqueness results of the TCMV equilibrium controls for general SV models and derive explicit closed-form equilibrium controls for several popular models, including the Heston, Hull–White and 3/2 SV models. The uniqueness of the equilibrium controls are related to the mean-reverting speed of the volatility and the investment horizon.

Original language	English
Pages (from-to)	211-223
Number of pages	13
Journal	Automatica
Volume	107
DOIs	https://doi.org/10.1016/j.automatica.2019.05.044
State	Published - Sep 2019
Externally published	Yes

Keywords

Mean–variance portfolio
Open-loop stochastic control
Stochastic volatility model
Time inconsistency

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10.1016/j.automatica.2019.05.044

Cite this

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title = "Open-loop equilibrium strategy for mean–variance portfolio problem under stochastic volatility",

abstract = "We formulate the open-loop control framework for time-consistent mean–variance (TCMV) portfolio problems in incomplete markets with stochastic volatility (SV). We offer the existence and uniqueness results of the TCMV equilibrium controls for general SV models and derive explicit closed-form equilibrium controls for several popular models, including the Heston, Hull–White and 3/2 SV models. The uniqueness of the equilibrium controls are related to the mean-reverting speed of the volatility and the investment horizon.",

keywords = "Mean–variance portfolio, Open-loop stochastic control, Stochastic volatility model, Time inconsistency",

author = "Tingjin Yan and Wong, \{Hoi Ying\}",

note = "Publisher Copyright: {\textcopyright} 2019 Elsevier Ltd",

year = "2019",

month = sep,

doi = "10.1016/j.automatica.2019.05.044",

language = "英语",

volume = "107",

pages = "211--223",

journal = "Automatica",

issn = "0005-1098",

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T1 - Open-loop equilibrium strategy for mean–variance portfolio problem under stochastic volatility

AU - Yan, Tingjin

AU - Wong, Hoi Ying

PY - 2019/9

Y1 - 2019/9

N2 - We formulate the open-loop control framework for time-consistent mean–variance (TCMV) portfolio problems in incomplete markets with stochastic volatility (SV). We offer the existence and uniqueness results of the TCMV equilibrium controls for general SV models and derive explicit closed-form equilibrium controls for several popular models, including the Heston, Hull–White and 3/2 SV models. The uniqueness of the equilibrium controls are related to the mean-reverting speed of the volatility and the investment horizon.

AB - We formulate the open-loop control framework for time-consistent mean–variance (TCMV) portfolio problems in incomplete markets with stochastic volatility (SV). We offer the existence and uniqueness results of the TCMV equilibrium controls for general SV models and derive explicit closed-form equilibrium controls for several popular models, including the Heston, Hull–White and 3/2 SV models. The uniqueness of the equilibrium controls are related to the mean-reverting speed of the volatility and the investment horizon.

KW - Mean–variance portfolio

KW - Open-loop stochastic control

KW - Stochastic volatility model

KW - Time inconsistency

UR - https://www.scopus.com/pages/publications/85066759045

U2 - 10.1016/j.automatica.2019.05.044

DO - 10.1016/j.automatica.2019.05.044

M3 - 文章

AN - SCOPUS:85066759045

SN - 0005-1098

VL - 107

SP - 211

EP - 223

JO - Automatica

JF - Automatica

ER -

Open-loop equilibrium strategy for mean–variance portfolio problem under stochastic volatility

Abstract

Keywords

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