A class of portfolio selection with a four-factor futures price model
Yan, Wei1,2; Li, Shurong2
AbstractConsidering the stochastic exchange rate, a four-factor futures model with the underling asset, convenience yield, instantaneous risk free interest rate and exchange rate, is established. These processes follow jump-diffusion processes (Weiner process and Poisson process). The corresponding partial differential equation (PDE) of the futures price is derived. The general solution of the PDE with parameters is drawn. The weight least squares approach is applied to obtain the parameters of above PDE. Variance is substituted by semi-variance in Markowitzs portfolio selection model. Therefore, a class of multi-period semi-variance model is formulated originally. Then, a continuous-time mean-variance portfolio model is also considered. The corresponding stochastic Hamilton-Jacobi-Bellman (HJB) equation of the problem with nonlinear constraints is derived. A numerical algorithm is proposed for finding the optimal solution in this paper. Finally, in order to demonstrate the effectiveness of the theoretical models and numerical methods, the fuel futures in Shanghai exchange market and the Brent crude oil futures in London exchange market are selected to be examples.
KeywordFour-factor model Multi-period semi-variance portfolio Exchange rate Futures Numerical algorithm
WOS Research AreaOperations Research & Management Science
WOS SubjectOperations Research & Management Science
WOS IDWOS:000261937900012
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Document Type期刊论文
Corresponding AuthorYan, Wei
Affiliation1.Chinese Acad Sci, Inst Syst Sci, Acad Math & Syst Sci, Beijing 100080, Peoples R China
2.China Univ Petr, Coll Informat & Control Engn, Dongying Shandong 257061, Peoples R China
Recommended Citation
GB/T 7714
Yan, Wei,Li, Shurong. A class of portfolio selection with a four-factor futures price model[J]. ANNALS OF OPERATIONS RESEARCH,2008,164(1):139-165.
APA Yan, Wei,&Li, Shurong.(2008).A class of portfolio selection with a four-factor futures price model.ANNALS OF OPERATIONS RESEARCH,164(1),139-165.
MLA Yan, Wei,et al."A class of portfolio selection with a four-factor futures price model".ANNALS OF OPERATIONS RESEARCH 164.1(2008):139-165.
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