Journal article

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

T Wang, Z Jin, J Wei

Quantitative Finance | Taylor & Francis (Routledge) | Published : 2020

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 interestin..

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University of Melbourne Researchers

Grants

Awarded by 111 Project


Awarded by National Natural Science Foundation of China


Awarded by Research Grants Council of the Hong Kong Special Administrative Region


Funding Acknowledgements

This research was supported by the 111 Project [grant number B14019]; the National Natural Science Foundation of China [grant number 11601157, 11571113, 11231007, 11401404, 11971332, and 11931011]; the Fundamental Research Funds for the central Universities; and Research Grants Council of the Hong Kong Special Administrative Region [grant number 17330816].