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A mean-variance frontier in discrete and continuous time

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  • Bekker, Paul A.

    (Groningen University)

Abstract

The paper presents a mean-variance frontier based on dynamic frictionless investment strategies in continuous time. The result applies to a finite number of risky assets whose price process is given by multivariate geometric Brownian motion with deterministically varying coefficients. The derivation is based on the solution for the frontier in discrete time. Using the same multiperiod framework as Li and Ng (2000), I provide an alternative derivation and an alternative formulation of the solution. It allows for a nice asymptotic formulation of the efficient hyperbola and its underlying efficient processes that applies in continuous time.

Suggested Citation

  • Bekker, Paul A., 2004. "A mean-variance frontier in discrete and continuous time," CCSO Working Papers 200406, University of Groningen, CCSO Centre for Economic Research.
    • Handle: RePEc:gro:rugccs:200406
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    File URL: http://irs.ub.rug.nl/ppn/265956366
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    References listed on IDEAS

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    1. Martin Schweizer, 1995. "Variance-Optimal Hedging in Discrete Time," Mathematics of Operations Research, INFORMS, vol. 20(1), pages 1-32, February.
    2. Leippold, Markus & Trojani, Fabio & Vanini, Paolo, 2004. "A geometric approach to multiperiod mean variance optimization of assets and liabilities," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1079-1113, March.
    3. Duan Li & Wan‐Lung Ng, 2000. "Optimal Dynamic Portfolio Selection: Multiperiod Mean‐Variance Formulation," Mathematical Finance, Wiley Blackwell, vol. 10(3), pages 387-406, July.
    4. Henry R. Richardson, 1989. "A Minimum Variance Result in Continuous Trading Portfolio Optimization," Management Science, INFORMS, vol. 35(9), pages 1045-1055, September.
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