Title: Optimal Portfolio Selection Including Option with Regime Switching
Abstract: In this paper,we consider the optimal portfolio selection including option under a Markov modulated regime-switching market.We formulate the problem as an utility maximization problem over a finite time horizon and uncertain time horizon.By utilizing the dynamic programming principle,we derive a regime-switching HJB equation.We provide the optimal portfolio selection under different markets which depends on the corresponding parameters.In this paper,we also obtain an important result that the wealth invested in the risky assets and the wealth invested in the option have a linear relationship.And the linear relationships are different in different markets.Specially,we derive the expression of the value function when the utility function is power function.
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
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