Jin, Xing and Zhang, Kun (2013) Dynamic optimal portfolio choice in a jump-diffusion model with investment constraints. Journal of Banking & Finance, Volume 37 (Number 5). pp. 1733-1746. doi:10.1016/j.jbankfin.2013.01.017 ISSN 0378-4266.

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Abstract

We consider the dynamic portfolio choice problem in a jump-diffusion model, where an investor may face constraints on her portfolio weights: for instance, no-short-selling constraints. It is a daunting task to use standard numerical methods to solve a constrained portfolio choice problem, especially when there is a large number of state variables. By suitably embedding the constrained problem in an appropriate family of unconstrained ones, we provide some equivalent optimality conditions for the indirect value function and optimal portfolio weights. These results simplify and help to solve the constrained optimal portfolio choice problem in jump-diffusion models. Finally, we apply our theoretical results to several examples, to examine the impact of no-short-selling and/or no-borrowing constraints on the performance of optimal portfolio strategies.

Item Type:	Journal Article
Divisions:	Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Banking & Finance
Publisher:	Elsevier Science BV
ISSN:	0378-4266
Official Date:	May 2013
Dates:	Date Event May 2013 Published 8 January 2013 Accepted 19 April 2012 Submitted
Volume:	Volume 37
Number:	Number 5
Page Range:	pp. 1733-1746
DOI:	10.1016/j.jbankfin.2013.01.017
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access

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