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Optimal multi-period mean–variance policy under no-shorting constraint

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  • Cui, Xiangyu
  • Gao, Jianjun
  • Li, Xun
  • Li, Duan

Abstract

We consider in this paper the mean–variance formulation in multi-period portfolio selection under no-shorting constraint. Recognizing the structure of a piecewise quadratic value function, we prove that the optimal portfolio policy is piecewise linear with respect to the current wealth level, and derive the semi-analytical expression of the piecewise quadratic value function. One prominent feature of our findings is the identification of a deterministic time-varying threshold for the wealth process and its implications for market settings. We also generalize our results in the mean–variance formulation to utility maximization with no-shorting constraint.

Suggested Citation

  • Cui, Xiangyu & Gao, Jianjun & Li, Xun & Li, Duan, 2014. "Optimal multi-period mean–variance policy under no-shorting constraint," European Journal of Operational Research, Elsevier, vol. 234(2), pages 459-468.
    • Handle: RePEc:eee:ejores:v:234:y:2014:i:2:p:459-468
    DOI: 10.1016/j.ejor.2013.02.040
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