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Time‐Consistent Strategies for a Multiperiod Mean‐Variance Portfolio Selection Problem

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  • Huiling Wu

Abstract

It remained prevalent in the past years to obtain the precommitment strategies for Markowitz′s mean‐variance portfolio optimization problems, but not much is known about their time‐consistent strategies. This paper takes a step to investigate the time‐consistent Nash equilibrium strategies for a multiperiod mean‐variance portfolio selection problem. Under the assumption that the risk aversion is, respectively, a constant and a function of current wealth level, we obtain the explicit expressions for the time‐consistent Nash equilibrium strategy and the equilibrium value function. Many interesting properties of the time‐consistent results are identified through numerical sensitivity analysis and by comparing them with the classical pre‐commitment solutions.

Suggested Citation

  • Huiling Wu, 2013. "Time‐Consistent Strategies for a Multiperiod Mean‐Variance Portfolio Selection Problem," Journal of Applied Mathematics, John Wiley & Sons, vol. 2013(1).
    • Handle: RePEc:wly:jnljam:v:2013:y:2013:i:1:n:841627
    DOI: 10.1155/2013/841627
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    References listed on IDEAS

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    1. 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.
    2. Bezalel Peleg & Menahem E. Yaari, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(3), pages 391-401.
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    Cited by:

    1. Minsuk Kwak & Traian A. Pirvu & Huayue Zhang, 2014. "A Multiperiod Equilibrium Pricing Model," Journal of Applied Mathematics, John Wiley & Sons, vol. 2014(1).

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