Portfolio Optimization in the Financial Market with Regime Switching Under Constraints, Transaction Costs and Different Rates for Borrowing and Lending

8 Pages Posted: 10 Oct 2014

Date Written: October 3, 2014

Abstract

In this work, we consider the optimal portfolio selection problem under hard constraints on trading amounts, transaction costs and different rates for borrowing and lending when the dynamics of the risky asset returns are governed by a discrete-time approximation of the Markov-modulated geometric Brownian motion. The states of Markov chain are interpreted as the states of an economy. The problem is stated as a dynamic tracking problem of a reference portfolio with desired return. Our approach is tested on a set of a real data from Russian Stock Exchange MICEX.

Keywords: Investment portfolio, Regime switching models, Transaction costs

JEL Classification: G11

Suggested Citation

Dombrovskii, Vladimir and Obedko, Tatyana, Portfolio Optimization in the Financial Market with Regime Switching Under Constraints, Transaction Costs and Different Rates for Borrowing and Lending (October 3, 2014). Available at SSRN: https://ssrn.com/abstract=2504962 or http://dx.doi.org/10.2139/ssrn.2504962

Vladimir Dombrovskii

Tomsk State University ( email )

36, Lenina Avenue
Tomsk, 634050
Russia

Tatyana Obedko (Contact Author)

Tomsk State University ( email )

36, Lenina Avenue
Tomsk, 634050
Russia

Register to save articles to
your library

Register

Paper statistics

Downloads
75
Abstract Views
356
rank
314,930
PlumX Metrics