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Mean-variance portfolio selection with only risky assets under regime switching

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  • Zhang, Miao
  • Chen, Ping
  • Yao, Haixiang

Abstract

This paper explores a portfolio selection model of multiple risky assets with regime switching. There are n+1 risky assets in the financial market available to the mean-variance investors. The feasibility issue is solved by constructing an equivalent condition. We derive the analytical expressions of the efficient frontier and efficient feedback portfolio via three systems of ordinary differential equations that admit unique solutions. The mutual fund theorem is also proved. Several numerical examples are provided to demonstrate how the efficient frontier is affected by the market regime movement and the investor's time horizon.

Suggested Citation

  • Zhang, Miao & Chen, Ping & Yao, Haixiang, 2017. "Mean-variance portfolio selection with only risky assets under regime switching," Economic Modelling, Elsevier, vol. 62(C), pages 35-42.
    • Handle: RePEc:eee:ecmode:v:62:y:2017:i:c:p:35-42
    DOI: 10.1016/j.econmod.2016.12.030
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    Cited by:

    1. Reza Keykhaei, 2020. "Portfolio selection in a regime switching market with a bankruptcy state and an uncertain exit-time: multi-period mean–variance formulation," Operational Research, Springer, vol. 20(3), pages 1231-1254, September.
    2. Zhang, Caibin & Liang, Zhibin, 2022. "Optimal time-consistent reinsurance and investment strategies for a jump–diffusion financial market without cash," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    3. Pun, Chi Seng, 2018. "Time-consistent mean-variance portfolio selection with only risky assets," Economic Modelling, Elsevier, vol. 75(C), pages 281-292.
    4. Wang, Peiguang & Wang, Zihui & Wang, Wenli, 2024. "Modeling mispricing risk of defined contribution pension plan with a mean–variance criteria," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    5. Yu Yang & Yonghong Wu & Benchawan Wiwatanapataphee, 2020. "Time-consistent mean–variance asset-liability management in a regime-switching jump-diffusion market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(4), pages 401-427, December.

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