Time Cardinality Constrained Mean-Variance Dynamic Portfolio Selection

30 Pages Posted: 4 Aug 2009

See all articles by Jianjun Gao

Jianjun Gao

Shanghai University of Finance and Economics; Shanghai Jiao Tong University

Shouyang Wang

Chinese Academy of Sciences (CAS) - Center for Forecasting Science; Academy of Mathematics and Systems Sciences

Duan Li

Chinese University of Hong Kong; City University of Hong Kong

Date Written: August 4, 2009

Abstract

An investor does not always invest in risky assets in all time periods, often due to the management fee charged for hiring an agent in managing his investment in risky assets. Motivated by this observed common phenomenon, this paper considers the time cardinality constrained mean-variance dynamic portfolio selection problem (TCCMV) in which the number of time periods where investment in risky assets is allowed is limited. Both the analytical optimal portfolio policy and the analytical expression of the efficient mean-variance frontier are derived for TCCMV problem. By implementing such a solution procedure for different cardinalities, the mean-variance dynamic portfolio selection problem with management fees can be efficiently solved.

Keywords: Cardinality constraint, Dynamic programming, Management fees, Multi-period portfolio selection, Multi-period mean-variance formulation

JEL Classification: G11, C61

Suggested Citation

Gao, Jianjun and Wang, Shouyang and Li, Duan, Time Cardinality Constrained Mean-Variance Dynamic Portfolio Selection (August 4, 2009). Available at SSRN: https://ssrn.com/abstract=1443742 or http://dx.doi.org/10.2139/ssrn.1443742

Jianjun Gao

Shanghai University of Finance and Economics ( email )

No. 100 Wudong Road
Shanghai, Shanghai 200433
China

Shanghai Jiao Tong University ( email )

800 Dongchuan Road
Shanghai
China
+86-18201925139 (Phone)
+86 34205004 (Fax)

Shouyang Wang

Chinese Academy of Sciences (CAS) - Center for Forecasting Science; Academy of Mathematics and Systems Sciences ( email )

China

Duan Li (Contact Author)

Chinese University of Hong Kong ( email )

Shatin, New Territories
Hong Kong

City University of Hong Kong

Tat Chee Avenue
Kowloon Tong
Kowloon
Hong Kong
852 3442 8591 (Phone)

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