Application of stochastic linear quadratic optimal control in portfolio selection problem
Xiaochun Yang · Journal of systems engineering · 2007
This paper gives a class of stochastic linear quadratic control problem,a new stochastic Riccati equation is introduced,and if this equation exists solution,the optimal feedback control of system can be obtained.As its application,this paper studies class of mean-variance portfolio selection problem with continuous-time,its objective is to minimize the expected terminal return and minimize the variance of the terminal wealth.the problem can be transformed into a stochastic linear quadratic controle problem by the way of embedded.Moreover,the optimal portfolio is obtained under the condition of non-self-financing,and an example is given at last.