Numerical Solution of the Hamilton-Jacobi-Bellman Formulation for Continuous Time Mean Variance Asset Allocation

Abstract

We solve the optimal asset allocation problem using a mean variance approach. The original mean variance optimization problem can be embedded into a class of auxiliary stochastic LinearQuadratic (LQ) problems using the method in (Zhou and Li, 2000; Li and Ng, 2000). We use a finite difference method with fully implicit timestepping to solve the resulting… (More)

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