Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258150 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 9 [Issue:] 4 [Article No.:] 61 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-21
Publisher: 
MDPI, Basel
Abstract: 
This paper considers a mean-variance portfolio selection problem when the stock price has a 3/2 stochastic volatility in a complete market. Specifically, we assume that the stock price and the volatility are perfectly negative correlated. By applying a backward stochastic differential equation (BSDE) approach, closed-form expressions for the statically optimal (time-inconsistent) strategy and the value function are derived. Due to time-inconsistency of mean variance criterion, a dynamic formulation of the problem is presented. We obtain the dynamically optimal (time-consistent) strategy explicitly, which is shown to keep the wealth process strictly below the target (expected terminal wealth) before the terminal time. Finally, we provide numerical studies to show the impact of main model parameters on the efficient frontier and illustrate the differences between the two optimal wealth processes.
Subjects: 
3/2 stochastic volatility
backward stochastic differential equation
complete market
dynamic optimality
mean-variance portfolio selection
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Document Type: 
Article
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