Mean-variance Portfolio Selection Problem with Vasicek Stochastic Interest Rates

Abstract

This paper studies a continuous-time mean-variance portfolio selection problem with Vasicek stochastic interest rates. Compared with the mean-variance model with deterministic interest rate, a verification theorem without the classical Lipschitz and growth conditions is required to solve our portfolio selection problem. By using the stochastic dynamic programming principle and Hamilton-Jacobi-Bellman equation approach, the optimal investment strategy, the value function and the efficient frontier are derived in closed-form.