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Zbl 1163.91375
Çelikyurt, U.; Özekici, S.
Multiperiod portfolio optimization models in stochastic markets using the mean--variance approach. (English)
[J] Eur. J. Oper. Res. 179, No. 1, 186-202 (2007). ISSN 0377-2217

Summary: We consider several multiperiod portfolio optimization models where the market consists of a riskless asset and several risky assets. The returns in any period are random with a mean vector and a covariance matrix that depend on the prevailing economic conditions in the market during that period. An important feature of our model is that the stochastic evolution of the market is described by a Markov chain with perfectly observable states. Various models involving the safety-first approach, coefficient of variation and quadratic utility functions are considered where the objective functions depend only on the mean and the variance of the final wealth. An auxiliary problem that generates the same efficient frontier as our formulations is solved using dynamic programming to identify optimal portfolio management policies for each problem. Illustrative cases are presented to demonstrate the solution procedure with an interpretation of the optimal policies.

MSC 2000:: *91B28 Finance etc.
90B60 Marketing, advertising
91B70 Stochastic models

Keywords: portfolio optimization; stochastic market; mean--variance models; safety-first; coefficient of variation; quadratic utility functions

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Zentralblatt MATH Berlin [Germany]