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OPTIMAL PORTFOLIO ON TRACKING THE EXPECTED WEALTH PROCESS WITH LIQUIDITY CONSTRAINTS |
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| Authors: | Luo Kui Industrial Training Centre Shenzhen Polytechnic Shenzhen China Wang Guangming China Merchants Bank Shenzhen China Hu Yijun School of Mathematics Statistics Wuhan University Wuhan China |
| Institution: | Luo Kui Industrial Training Centre,Shenzhen Polytechnic,Shenzhen 518055,China Wang Guangming China Merchants Bank,Shenzhen 518040,China Hu Yijun School of Mathematics and Statistics,Wuhan University,Wuhan 430072,China |
| Abstract: | In this article, the authors consider the optimal portfolio on tracking the expected wealth process with liquidity constraints. The constrained optimal portfolio is first formulated as minimizing the cumulate variance between the wealth process and the expected wealth process. Then, the dynamic programming methodology is applied to reduce the whole problem to solving the Hamilton-Jacobi-Bellman equation coupled with the liquidity constraint, and the method of Lagrange multiplier is applied to handle the con... |
| Keywords: | Portfolio selection wealth tracking liquidity constraints HJB equation Lagrange multiplier |
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