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MEAN–VARIANCE PORTFOLIO CHOICE: QUADRATIC PARTIAL HEDGING
Author(s) -
Xia Jianming
Publication year - 2005
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2005.00231.x
Subject(s) - portfolio , economics , variance (accounting) , econometrics , incomplete markets , bankruptcy , quadratic equation , replicating portfolio , utility maximization , maximization , portfolio optimization , marginal utility , actuarial science , mathematics , mathematical economics , financial economics , microeconomics , finance , geometry , accounting
In this paper we investigate the problem of mean–variance portfolio choice with bankruptcy prohibition. For incomplete markets with continuous assets' price processes and for complete markets, it is shown that the mean–variance efficient portfolios can be expressed as the optimal strategies of partial hedging for quadratic loss function. Thus, mean–variance portfolio choice, in these cases, can be viewed as expected utility maximization with non‐negative marginal utility.