Investment Strategies and Compensation of a Mean-Variance Optimizing Fund Manager

44 Pages Posted: 7 Jun 2011 Last revised: 21 Apr 2012

See all articles by Jan Palczewski

Jan Palczewski

University of Leeds - School of Mathematics

Georgios Aivaliotis

University of Leeds - School of Mathematics

Date Written: April 20, 2012

Abstract

This paper introduces a general continuous-time mathematical framework for solution of dynamic mean-variance control problems. We obtain theoretical results for two classes of functionals: the first one depends on the whole trajectory of the controlled process and the second one is based on its terminal-time value. These results enable the development of numerical methods for mean-variance problems for a pre-determined risk-aversion coefficient. We apply them to study optimal trading strategies pursued by fund managers in response to various types of compensation schemes. In particular, we examine the effects of continuous monitoring and scheme's symmetry on trading behaviour and fund performance.

Keywords: mean-variance, continuous-time stochastic control, viscosity solutions, investment strategy, managerial compensation

JEL Classification: C61, C63, G11, G23

Suggested Citation

Palczewski, Jan and Aivaliotis, Georgios, Investment Strategies and Compensation of a Mean-Variance Optimizing Fund Manager (April 20, 2012). Available at SSRN: https://ssrn.com/abstract=1859289 or http://dx.doi.org/10.2139/ssrn.1859289

Jan Palczewski (Contact Author)

University of Leeds - School of Mathematics ( email )

Leeds, LS2 9JT
United Kingdom

HOME PAGE: http://www.maths.leeds.ac.uk/~jp

Georgios Aivaliotis

University of Leeds - School of Mathematics ( email )

Leeds LS2 9JT
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
182
Abstract Views
1,016
rank
177,136
PlumX Metrics