Title :
Discrete-time mean-variance portfolio optimization with Markov switching parameters
Author :
Araujo, Michael Viriato ; Costa, Oswaldo Luiz do Valle
Author_Institution :
Escola Politecnica, Univ. de Sao Paulo
Abstract :
In this paper, a discrete-time version of the multi-period mean-variance portfolio selection problem in which the market parameters are subjected to a random regime switching is investigated. We analytically derive an optimal control policy for this mean-variance formulation in a closed form. Such a policy can be obtained by the solution of a set of interconnected Riccatti difference equations. Additionally, an explicit expression for the efficient frontier corresponding to this control law is identified and a numerical example with Brazilian assets is presented
Keywords :
Markov processes; Riccati equations; difference equations; discrete time systems; economic cybernetics; optimal control; random processes; Brazilian assets; Markov switching; discrete-time mean-variance portfolio optimization; interconnected Riccatti difference equations; multiperiod mean-variance portfolio selection problem; optimal control; random regime switching; Brazil Council; Difference equations; Financial management; Investments; Mood; Optimal control; Portfolios; Riccati equations; Stochastic processes; Uncertainty;
Conference_Titel :
American Control Conference, 2006
Conference_Location :
Minneapolis, MN
Print_ISBN :
1-4244-0209-3
Electronic_ISBN :
1-4244-0209-3
DOI :
10.1109/ACC.2006.1655475
