Dynamic Mean-Variance Model with Borrowing Constraint under the Constant Elasticity of Variance Process

[摘要] This paper studies a continuous-time dynamic mean-variance portfolio selection problem with the constraint of a higher borrowing rate, in which stock price is governed by a constant elasticity of variance (CEV)process. Firstly, we apply Lagrange duality theorem to change an original mean-variance problem into an equivalent optimization one. Secondly, we use dynamic programming principle to get the Hamilton-Jacobi-Bellman(HJB) equation for the value function, which is a more sophisticated nonlinear second-order partial differentialequation. Furthermore, we use Legendre transform and dual theory to transform the HJB equation into its dual one. Finally, the closed-form solutions to the optimal investment strategy and efficient frontier are derived by applyingvariable change technique.

[学科分类] 应用数学