Optimal Multiperiod Mean-Variance Policy Under No-Shorting Constraint

29 Pages Posted: 29 Jan 2012

See all articles by Xiangyu Cui

Xiangyu Cui

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management

Jianjun Gao

Shanghai University of Finance and Economics; Shanghai Jiao Tong University

Xun Li

affiliation not provided to SSRN

Duan Li

Chinese University of Hong Kong; City University of Hong Kong

Date Written: January 27, 2012

Abstract

We consider in this paper the mean-variance formulation in multi-period portfolio selection under no-shorting constraint. Recognizing the structure of a piecewise quadratic value function, we prove that the optimal portfolio policy is piecewise linear with respect to the current wealth level, and derive the semi-analytical expression of the piecewise quadratic value function. One prominent feature of our findings is the identification of a deterministic time-varying threshold for the wealth process and its implications for market settings. We also generalize our results in the mean-variance formulation to utility maximization under no-shorting constraint.

Suggested Citation

Cui, Xiangyu and Gao, Jianjun and Li, Xun and Li, Duan, Optimal Multiperiod Mean-Variance Policy Under No-Shorting Constraint (January 27, 2012). Available at SSRN: https://ssrn.com/abstract=1993087 or http://dx.doi.org/10.2139/ssrn.1993087

Xiangyu Cui

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management ( email )

Shatin, New Territories
Hong Kong

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)

Xun Li

affiliation not provided to SSRN

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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