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An Alternative Approach to Portfolio Selection Problem via Stochastic Differential Delay Equations

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Chilarescu, Constantin

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Abstract

This paper presents an alternative method to the portfolio selection problem. The central hypothesis is that the historical performance of the market can not be ignored. Consequently, we suppose that the price dynamics of any asset will be described by a stochastic differential delay equation: dP(t) = [aP(t) + bP (t − r)]dt + P(t)dW(t). We will illustrate our model by a numerical example and will compare the results with those derived from the classical model of Markowitz.

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File URL: http://mpra.ub.uni-muenchen.de/6080/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6080.

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Date of creation: 04 Dec 2007
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Handle: RePEc:pra:mprapa:6080

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G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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