Multiperiod Telser’s Safety-First Portfolio Selection with Regime Switching
This paper investigates a multiperiod Telser’s safety-first portfolio selection model with regime switching where the returns of the assets are assumed to depend on the market states modulated by a discrete-time Markov chain. The investor aims to maximize the expected terminal wealth and does not wa...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Wiley
2018-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2018/1832926 |
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| _version_ | 1832554828809633792 |
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| author | Chuangwei Lin Huiling Wu |
| author_facet | Chuangwei Lin Huiling Wu |
| author_sort | Chuangwei Lin |
| collection | DOAJ |
| description | This paper investigates a multiperiod Telser’s safety-first portfolio selection model with regime switching where the returns of the assets are assumed to depend on the market states modulated by a discrete-time Markov chain. The investor aims to maximize the expected terminal wealth and does not want the probability of the terminal wealth to fall short of a disaster level to exceed a predetermined number called the risk control level. Referring to Tchebycheff inequality, we modify Telser’s safety-first model to the case that aims to maximize the expected terminal wealth subject to a constraint where the upper bound of the disaster probability is less than the risk control level. By the Lagrange multiplier technique and the embedding method, we study in detail the existence of the optimal strategy and derive the closed-form optimal strategy. Finally, by mathematical and numerical analysis, we analyze the effects of the disaster level, the risk control level, the transition matrix of the Markov chain, the expected excess return, and the variance of the risky return. |
| format | Article |
| id | doaj-art-3690b26a5be841068998ec5b95a8c587 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2018-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-3690b26a5be841068998ec5b95a8c5872025-02-03T05:50:19ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2018-01-01201810.1155/2018/18329261832926Multiperiod Telser’s Safety-First Portfolio Selection with Regime SwitchingChuangwei Lin0Huiling Wu1Research Center for International Trade and Economic, Guangdong University of Foreign Studies, Guangzhou 510006, ChinaChina Institute for Actuarial Science, Central University of Finance and Economics, Beijing 100081, ChinaThis paper investigates a multiperiod Telser’s safety-first portfolio selection model with regime switching where the returns of the assets are assumed to depend on the market states modulated by a discrete-time Markov chain. The investor aims to maximize the expected terminal wealth and does not want the probability of the terminal wealth to fall short of a disaster level to exceed a predetermined number called the risk control level. Referring to Tchebycheff inequality, we modify Telser’s safety-first model to the case that aims to maximize the expected terminal wealth subject to a constraint where the upper bound of the disaster probability is less than the risk control level. By the Lagrange multiplier technique and the embedding method, we study in detail the existence of the optimal strategy and derive the closed-form optimal strategy. Finally, by mathematical and numerical analysis, we analyze the effects of the disaster level, the risk control level, the transition matrix of the Markov chain, the expected excess return, and the variance of the risky return.http://dx.doi.org/10.1155/2018/1832926 |
| spellingShingle | Chuangwei Lin Huiling Wu Multiperiod Telser’s Safety-First Portfolio Selection with Regime Switching Discrete Dynamics in Nature and Society |
| title | Multiperiod Telser’s Safety-First Portfolio Selection with Regime Switching |
| title_full | Multiperiod Telser’s Safety-First Portfolio Selection with Regime Switching |
| title_fullStr | Multiperiod Telser’s Safety-First Portfolio Selection with Regime Switching |
| title_full_unstemmed | Multiperiod Telser’s Safety-First Portfolio Selection with Regime Switching |
| title_short | Multiperiod Telser’s Safety-First Portfolio Selection with Regime Switching |
| title_sort | multiperiod telser s safety first portfolio selection with regime switching |
| url | http://dx.doi.org/10.1155/2018/1832926 |
| work_keys_str_mv | AT chuangweilin multiperiodtelserssafetyfirstportfolioselectionwithregimeswitching AT huilingwu multiperiodtelserssafetyfirstportfolioselectionwithregimeswitching |