MEAN–VARIANCE PORTFOLIO CHOICE: QUADRATIC PARTIAL HEDGING

Author: Xia, Jianming

Source: Mathematical Finance, Volume 15, Number 3, July 2005 , pp. 533-538(6)

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Abstract:

In this paper we investigate the problem of mean–variance portfolio choice with bankruptcy prohibition. For incomplete markets with continuous assets' price processes and for complete markets, it is shown that the mean–variance efficient portfolios can be expressed as the optimal strategies of partial hedging for quadratic loss function. Thus, mean–variance portfolio choice, in these cases, can be viewed as expected utility maximization with non-negative marginal utility.

Keywords: mean–variance portfolios; utility maximization; partial hedging; incomplete markets

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-9965.2005.00231.x

Affiliations: 1: Academy of Mathematics and Systems Sciences, Chinese Academy of Sciences

Publication date: 2005-07-01