Mean-variance portfolio selection in a jump-diffusion financial market with common shock dependence

Artikel

This paper considers the optimal investment problem in a financial market with one risk-free asset and one jump-diffusion risky asset. It is assumed that the insurance risk process is driven by a compound Poisson process and the two jump number processes are correlated by a common shock. A general mean-variance optimization problem is investigated, that is, besides the objective of terminal condition, the quadratic optimization functional includes also a running penalizing cost, which represents the deviations of the insurer's wealth from a desired profit-solvency goal. By solving the Hamilton-Jacobi-Bellman (HJB) equation, we derive the closed-form expressions for the value function, as well as the optimal strategy. Moreover, under suitable assumption on model parameters, our problem reduces to the classical mean-variance portfolio selection problem and the efficient frontier is obtained.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 11 ; Year: 2018 ; Issue: 2 ; Pages: 1-12 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft
• Subject: optimal investment ; common shock ; general mean-variance optimization problem ; HJB equation ; value function ; efficient frontier

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tian, Yingxu ; Sun, Zhongyang
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2018

Further information

• DOI: doi:10.3390/jrfm11020025
• Handle: http://hdl.handle.net/10419/238872
• Last update: 10.03.2025, 11:42 AM CET