IDEAS home Printed from https://ideas.repec.org/a/spr/mathme/v60y2004i3p485-496.html
   My bibliography  Save this article

Optimal portfolio selection when stock prices follow an jump-diffusion process

Author

Listed:
  • Wenjing Guo
  • Chengming Xu

Abstract

A portfolio selection problem in which the prices of stocks follow jump-diffusion process is studied. The objective is to maximize the expected terminal return and minimize the variance of the terminal wealth. A stochastic linear-quadratic control problem is introduced as auxiliary problem of the initial problem. In order to solve the auxiliary problem, a verification theorem for general stochastic optimal control with states following an jump-diffusion process is showed. By applying the verification theorem and solving the HJB equation, the optimal strategies in an explicit form for the auxiliary and initial control problem are presented. Finally, the efficient frontier in a closed form for the initial portfolio selection problem is derived. Copyright Springer-Verlag 2004

Suggested Citation

  • Wenjing Guo & Chengming Xu, 2004. "Optimal portfolio selection when stock prices follow an jump-diffusion process," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 60(3), pages 485-496, December.
    • Handle: RePEc:spr:mathme:v:60:y:2004:i:3:p:485-496
    DOI: 10.1007/s001860400365
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s001860400365
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s001860400365?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wenjing Guo & Chengming Xu, 2007. "Correction on “Optimal portfolio selection when stock prices follow an jump-diffusion process”," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 65(3), pages 559-564, June.
    2. Josa-Fombellida, Ricardo & López-Casado, Paula, 2023. "A defined benefit pension plan game with Brownian and Poisson jumps uncertainty," European Journal of Operational Research, Elsevier, vol. 310(3), pages 1294-1311.
    3. 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.
    4. Nicole Bäuerle & Ulrich Rieder, 2013. "Optimal Deterministic Investment Strategies for Insurers," Risks, MDPI, vol. 1(3), pages 1-18, November.
    5. Ricardo Huamán-Aguilar & Abel Cadenillas, 2015. "Government Debt Control: Optimal Currency Portfolio and Payments," Operations Research, INFORMS, vol. 63(5), pages 1044-1057, October.
    6. Huiling Wu, 2013. "Mean-Variance Portfolio Selection with a Stochastic Cash Flow in a Markov-switching Jump–Diffusion Market," Journal of Optimization Theory and Applications, Springer, vol. 158(3), pages 918-934, September.
    7. Wei Yan & Shurong Li, 2008. "A class of portfolio selection with a four-factor futures price model," Annals of Operations Research, Springer, vol. 164(1), pages 139-165, November.
    8. Łukasz Delong & Russell Gerrard, 2007. "Mean-variance portfolio selection for a non-life insurance company," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 66(2), pages 339-367, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:mathme:v:60:y:2004:i:3:p:485-496. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.