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Duality in mean-variance frontiers with conditioning information

  • Francisco Peñaranda
  • Enrique Sentana

Portfolio and stochastic discount factor (SDF) frontiers are usually regarded as dual objects, and researchers sometimes use one to answer questions about the other. However, the introduction of conditioning information and active portfolio strategies alters this relationship. For instance, the unconditional portfolio frontier in Hansen and Richard (1987) is not dual to the unconditional SDF frontier in Gallant, Hansen and Tauchen (1990). We characterise the dual objects to those frontiers, and relate them to the frontiers generated with managed portfolios, which are commonly used in empirical work. We also study the implications of a safe asset and other special cases.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1058.

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Date of creation: Oct 2007
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Handle: RePEc:upf:upfgen:1058
Contact details of provider: Web page: http://www.econ.upf.edu/

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