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Dynamic Asset Allocation in a Mean-Variance Framework

Author

Listed:
  • Isabelle Bajeux-Besnainou

    (School of Business and Public Management, The George Washington University, Washington, DC 20052)

  • Roland Portait

    (ESSEC, Cergy-Pontoise, 95021, France)

Abstract

The aim of this article is to analyze the portfolio strategies that are mean-variance efficient when continuous rebalancing is allowed between the current date (0) and the horizon (T). Under very general assumptions, when a zero-coupon bond of maturity T exists, the dynamic efficient frontier is a straight line, the slope of which is explicitly characterized. Every dynamic mean-variance efficient strategy can be viewed as buy and hold combinations of two funds: the zero-coupon bond of maturity T and a continuously rebalanced portfolio. An appropriate dynamic strategy defining the latter is explicitly derived for two particular price processes and comparisons of the Efficient Frontiers (Static versus Dynamic) are provided in these cases.

Suggested Citation

  • Isabelle Bajeux-Besnainou & Roland Portait, 1998. "Dynamic Asset Allocation in a Mean-Variance Framework," Management Science, INFORMS, vol. 44(11-Part-2), pages 79-95, November.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:11-part-2:p:s79-s95
    DOI: 10.1287/mnsc.44.11.S79
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    References listed on IDEAS

    as
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