Time-consistent mean-variance portfolio selection under HN-GARCH

doi:10.7523/j.ucas.2025.002

Abstract

Abstract: In this paper, we derive a time-consistent solution for mean-variance portfolio selection within the framework of the HN-GARCH model. Then, by using the optimal solution derived under exponential utility as a reference point, we introduce a well-defined performance metric, namely certainty equivalent return loss (certainty equivalent return loss, CErL), to assess portfolio performance. Finally, based on the historical data of the NASDAQ-100 Index, Monte Carlo simulation empirically demonstrate that the solution under the GARCH model outperforms that under a homoscedastic variant in terms of CErL and the performance of asymmetric GARCH is better than symmetric GARCH’s performance.

Key words: HN-GARCH model, mean-variance, time-consistent, exponential utility, certainty equivalent return loss

CLC Number:

O221.5

RUAN Zhongjie, LUO Cuicui. Time-consistent mean-variance portfolio selection under HN-GARCH[J]. Journal of University of Chinese Academy of Sciences, DOI: 10.7523/j.ucas.2025.002.

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