Terminal perturbation method for the backward approach to continuous time mean–variance portfolio selection

A terminal perturbation method is introduced to study the backward approach to continuous time mean–variance portfolio selection with bankruptcy prohibition in a complete market model. Using Ekeland’s variational principle, we obtain a necessary condition, i.e. the stochastic maximum principle, which the optimal terminal wealth satisfies. This method can deal with nonlinear wealth equation with bankruptcy prohibition and several examples are given to show applications of our results.