Multi Period Portfolio Management with Bankrupt Control Using Dynamic Programming

Hassanlou, Khadijeh

doi:10.29252/jemr.7.27.207

Volume 8, Issue 27 (3-2017) jemr 2017, 8(27): 207-230 | Back to browse issues page

‎ 10.29252/jemr.7.27.207

‎ 20.1001.1.22286454.1396.7.27.1.3

Mendeley

Zotero

RefWorks

Hassanlou K. Multi Period Portfolio Management with Bankrupt Control Using Dynamic Programming. jemr 2017; 8 (27) :207-230
URL: http://jemr.khu.ac.ir/article-1-983-en.html

Multi Period Portfolio Management with Bankrupt Control Using Dynamic Programming

Khadijeh Hassanlou ^*

, kh.hassanlou@khatam.ac.ir

Abstract: (6185 Views)

Efficient portfolio management, has been attractive for financial researchers and was wished for investors from past to now. In this research, a multiperiod portfolio optimization problem for asset liability management of an investor who intends to control the probability of bankrupt is investigated. The proposed portfolio is consisting of number of risky assets, risk free asset and a type of debt. A mean variance model, with constraint of bankrupt controlling in different time horizons is proposed. Lagrangian Multiplier Method with dynamic programming is used for solving proposed model and regarding to its complexity degree, Genetic algorithm was the best selection for reaching numerical results. The proposed model is ran with real data consisting of 10 accepted company in Tehran stock exchange, bonds and bank loan as an investor debt.

Keywords: Portfolio Management, Mean- Variance Model, Dynamic Programming, Genetic Algorithm.

Full-Text [PDF 2682 kb] (2455 Downloads)

Type of Study: توسعه ای | Subject: پولی و مالی
Received: 2016/03/15 | Accepted: 2017/01/29 | Published: 2017/05/17

References

1.  Bazaraa, M.S., Shetty, C.M., (1976), Nonlinear Programming: Theory and Algorithms, Wiley, Now York.

2.  Bielecki, T.R., Jin, H., Pliska, S.R., Zhou, X.Y., (2005), Continuous-time mean–variance portfolio selection with bankruptcy prohibition, Math. Finance, 15, 213–244.

3.  Chen, P., Yang, H.L., (2011), Markowitz's mean–variance asset–liability management with regime switching: a multi-period model, Appl. Math. Finance, 18, 29–50. [DOI:10.1080/13504861003703633]

5.  Chiu, M.C., Li, D., (2006), Asset and liability management under a continuous-time mean–variance optimization framework, Insur. Math. Econ., 39, 330–355.

6.  Jones, T.L., Brown, J., (2009), Integrating asset–liability risk management with portfolio optimization for individual investors, J. Wealth Manage, 12, 51–60. [DOI:10.3905/jwm.2009.12.3.051]

8.  Leippold, M.,Trojani, F., Vanini,P., (2002), Multiperiod Asset-Liability Management in a Mean-Variance Framework with Exogenous and Endogenous Liabilities, University of Southern Switzerland, Lugano.

9.  Leippold, M., F. Trojani, and P. Vanini, (2004), A geometric approach to multi-period meanvariance optimization of assets and liabilities, Journal of Economic Dynamics and Control, 28, 1079-1113

10.  Li, D., Ng, W.L., (2000), Optimal dynamic portfolio selection: multi period mean–variance formulation, Math. Finance, 10, 387–406.

11.  Li, Ch., Li, Zh., (2012), Multi-period portfolio optimization for asset–liability management with bankrupt control, Applied Mathematics and Computation, 218, 11196–11208.

12.  Markowitz, H., (1952), Portfolio selection, Journal of Finance, 7, 77–91.

13.  Markowitz, H., (1956), The optimization of a quadratic function subject to linear constraint, Naval Research Logistics Quarterly, 3, 111–133,

14.  Markowitz, H., (1959), Portfolio selection: Efficient diversification of investments, New York: Wiley.

15.  Sadjadi, S. j., Seyedhosseini, S. M., Hassanlou, Kh., (2011), Fuzzy multi period portfolio selection with different rates for borrowing and lending, Applied Soft Computing, 11, 3821–3826.

16.  Seyedhosseini, S. M., Sadjadi, S. j., Hassanlou, Kh., (2010), New approach for multiperiod portfolio optimization with different rates for borrowing and lending, Journal of Academy of Business and Economics, 10.

17.  Seyedhosseini, S. M., Sadjadi, S. j., Hassanlou, Kh., (2010), Multiperiod portfolio selection with different rates for borrowing and lending in presence of transaction costs, International Journal of Industrial Engineering& Production research, 21, 45-51.

18.  Seyedhosseini, S. M., Hassanlou, Kh., Rahi, M., (2011), A Stochastic Programming Model for Multiperiod Portfolio Selection with New Constraints, Journal of Academy of Business and Economics, 11,224 - 230.

19.  Xie, S.X., (2009), Continuous-time mean–variance portfolio selection with liability and regime switching, Insur. Math. Econ., 45, 943–953.

20.  Yi, L., Li, Z.F., Li, D., (2008), Multi-period portfolio selection for asset–liability management with uncertain investment horizon, J. Ind. Manage. Optim, 4, 535–552.

21.  Zhang, L., Li, Z., (2012), Multi-Period Mean-Variance Portfolio Selection with Uncertain Time Horizon When Returns Are Serially Correlated, Mathematical Problems in Engineering.

22.  Zhou,X.Y., Li,D., (2000), Continuous-time mean–variance portfolio selection: a stochastic LQ framework, Appl. Math. Opt., 42, 19–33.

23. o Zhu, S.S., Li, D., Wang, S.Y., (2004), Risk control over bankruptcy in dynamic portfolio selection: a generalized mean–variance formulation, IEEE Trans. Autom. Control, 49, 447–457. [DOI:10.1109/TAC.2004.824474]