


Selected Development Project 


Project Title 
Meanvariance portfolio selection and assetliability management with the Wishart process
均值方差投資組合與資產負債管理威夏爾特過程之情況 


Principal Investigator 
Dr CHIU Mei Choi 






Project Period 

Objectives 
 Developing theories for portfolio policy using the meanvariance (MV) criteria when the financial assets follow the Wishart affine stochastic covariance (WASC) process.
 Proving the feasibility, optimality and uniqueness of the solution using the backward stochastic differential equation (BSDE) theory.
 Deriving the HJB equation for the timeconsistent MV problem under WASC process
 Proposing and conducting corresponding numerical studies.



Methods Used 
The key research methods are the BSDE theory, martingale approach and HJB equations

Summary of Findings 
 The MV optimal trading strategy is developed under WASC process.
 The analytical form of MVefficient frontier under WASC process is obtained.
 For another utility maximization problem, expected constantrelativeriskaverse (CRRA) is consider as a utility function. The optimal investment policy is obtained under CRRA utility with stochastic interest rate following the extended CIR model, which is the onedimensional case of WASC process.

Impact 
 As traditional MV approach only considers constant correlations, this project provides the first mathematical result to support empirical findings in the finance literature.
 In addition, the obtained mathematical method is novel and is expected to be useful in studying linearquadratic stochastic optimal control problems with unbounded random coefficients in other areas such as engineering and information technology.

Output 
There are five acceptance papers:
 Chiu, M.C., Wong, H.Y. & Zhao J. (2015). Commodity derivatives pricing with cointegration and stochastic covariances. European Journal of Operational Research, 246(2), 476486.
 Chiu, M.C., & Wong, H.Y. (2014). Meanvariance assetliability management with asset correlation risk and insurance liabilities. Insurance: Mathematics and Economics, 59, 300310.
 Chiu, M.C., & Wong, H.Y. (2014). Optimal investment for insurers with the extended CIR interest rate model. Abstract and Applied Analysis, (2014) Article ID 129474, 112.
 Chiu, M.C., & Wong, H.Y. (2014). Meanvariance portfolio selection with correlation risk. Journal of Computational and Applied Mathematics, 263, 432444.
 Wong, T.W., Chiu, M.C., Wong, H.Y. (2014). Timeconsistent meanvariance hedging of longevity risk: Effect of cointegration. Insurance: Mathematics and Economics, 56, 5667.

Biography of Principal Investigator 
Mei Choi obtained her BSc degree in Mathematical Sciences from Hong Kong Baptist University, MPhil degree in Mathematics from Hong Kong University of Science and Technology (HKUST), and PhD degree in Systems Engineering and Engineering Management (SEEM) from the Chinese University of Hong Kong (CUHK). Her work experience includes postdoctoral fellowship at SEEM of CUHK, research associate at Department of Statistics of CUHK, visiting scholar at Department of Mathematics of HKUST, and parttime consultant for the MSc degree program in Financial Mathematics and Statistics of HKUST. 
Funding Source 
Early Career Scheme 




