Mean-Variance Portfolio Selection with Random Investment Horizon

Jingzhen Liu, Ka Fai Cedric Yiu, Xun Li, Tak Kuen Siu, Kok Lay Teo

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

This paper studies a continuous-time securities market where an agent, having a random investment horizon and a targeted terminal mean return, seeks to minimize the variance of a portfolio's return. Two situations are discussed, namely a deterministic time-varying density process and a stochastic density process. In contrast to [18], the variance of an investment portfolio is no longer minimal when all assets are invested in a risk-free security. Furthermore, the random investment horizon has a material effect on the efficient frontier. This provides some insights into the classical mutual fund theorem.

Original languageEnglish
Pages (from-to)4726-4739
Number of pages14
JournalJournal of Industrial and Management Optimization
Volume19
Issue number7
DOIs
Publication statusPublished - Jul 2023

Keywords

  • efficient frontier
  • HJB equations
  • Mean variance
  • random time horizon

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Control and Optimization
  • Applied Mathematics

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