Optimal Portfolio Selection With Liability Management And Markov Switching Under Constrained Variance

In this paper, under the constrained variance assumption, we mainly discussed an optimal portfolio selection model with liability management and Markov switching. That is, we focused on how to maximize the expected final surplus under certain risk.On the basis of the pioneering work of Chiu and Li(2006), we extended the single-stage model to a multi-stage problem which was based on the Markov model. Fur-thermore, we demonstrated that those results in Chiu and Li(2006) is a special case in our problems. While discussing the optimal strategy in portfolio selection problem and its efficient frontier, we introduced the stochastic linear quadratic control theory. When compared to other methods, this method is more clear and natural, which is easier to extend and apply. In this paper, we began with the general stochastic linear quadratic model in chapter 3, and obtain the optimal solution of the problem. Exact-ly, with the help of stochastic analysis and matrix construction method, the analytical optimal portfolio strategy and the M-V efficient frontier were derived in chapter 3 and chapter 4. Finally, evidence shows that our model is much more consistent under cur-rent economic conditions than the original one, and then we can say the conclusion in the paper may serve as a powerful tool for further research in portfolio selection and efficient frontier fields.