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Optimal Constant-Rebalanced Portfolio Investment Strategies For Dynamic Portfolio Selection

Author

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  • ZHONG-FEI LI

    (Department of Finance, Lingnan (University) College, Sun Yat-Sen University, Guangzhou 510275, People's Republic of China)

  • KAI W. NG

    (Department of Statistics and Actuarial Science, The University of Hong Kong, Pokfulam Road, Hong Kong, China)

  • KEN SENG TAN

    (Department of Statistics and Actuarial Science, University of Waterloo, University Avenue West, Waterloo, Ontario, Canada;
    China Institute for Actuarial Science, Central University of Finance and Economics, Beijing, China)

  • HAILIANG YANG

    (Department of Statistics and Actuarial Science, The University of Hong Kong, Pokfulam Road, Hong Kong, China)

Abstract

In this paper we propose a variant of the continuous-time Markowitz mean-variance model by incorporating the Earnings-at-Risk measure in the portfolio optimization problem. Under the Black-Scholes framework, we obtain closed-form expressions for the optimal constant-rebalanced portfolio (CRP) investment strategy. We also derive explicitly the corresponding mean-EaR efficient portfolio frontier, which is a generalization of the Markowitz mean-variance efficient frontier.

Suggested Citation

  • Zhong-Fei Li & Kai W. Ng & Ken Seng Tan & Hailiang Yang, 2006. "Optimal Constant-Rebalanced Portfolio Investment Strategies For Dynamic Portfolio Selection," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(06), pages 951-966.
    • Handle: RePEc:wsi:ijtafx:v:09:y:2006:i:06:n:s0219024906003883
    DOI: 10.1142/S0219024906003883
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    Cited by:

    1. Leung, Andrew P., 2011. "Reactive investment strategies," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 89-99, July.

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