Borkar, V. S. ; Suresh Kumar, K. (2010) McKean-Vlasov limit in portfolio optimization Stochastic Analysis and Applications, 28 (5). pp. 884-906. ISSN 0736-2994
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Official URL: http://www.tandfonline.com/doi/abs/10.1080/0736299...
Related URL: http://dx.doi.org/10.1080/07362994.2010.482836
Abstract
This article considers a sector-wise allocation in a portfolio consisting of a very large number of stocks. Their interdependence is captured by the dependence of the drift coefficient of each stock on an averaged effect of the sectors. This leads to a decoupled dynamics in the limit of large numbers, akin to the "mean field" limit leading to the McKean-Vlasov equation in statistical physics. This gives a more compact description using a time-varying drift characterized in terms of a measure-valued process that satisfies a nonlinear parabolic equation. The classical portfolio optimization problem is then addressed in this framework.
| Item Type: | Article |
|---|---|
| Source: | Copyright of this article belongs to Taylor and Francis Group. |
| Keywords: | Mckean-Vlasov Equation; Nonlinear Parabolic Equation; Portfolio Optimization |
| ID Code: | 81476 |
| Deposited On: | 07 Feb 2012 05:02 |
| Last Modified: | 07 Feb 2012 05:02 |
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