Discrete and continuous time dynamic mean-variance analysis
Contrary to static mean-variance analysis, very few papers have dealt with dynamic mean-variance analysis. Here, the mean-variance efficient self-financing portfolio strategy is derived for n risky assets in discrete and continuous time. In the discrete setting, the resulting portfolio is mean-variance efficient in a dynamic sense. It is shown that the optimal strategy for n risky assets may be dominated if the expected terminal wealth is constrained to exactly attain a certain goal instead of exceeding the goal. The optimal strategy for n risky assets can be decomposed into a locally mean-variance efficient strategy and a strategy that ensures optimum diversification across time. In continuous time, a dynamically mean-variance efficient portfolio is infeasible due to the constraint on the expected level of terminal wealth. A modified problem where mean and variance are determined at t=0 was solved by Richardson (1989). The solution is discussed and generalized for a market with n risky assets. Moreover, a dynamically optimal strategy is presented for the objective of minimizing the expected quadratic deviation from a certain target level subject to a given mean. This strategy equals that of the first objective. The strategy can be reinterpreted as a two-fund strategy in the growth optimum portfolio and the risk-free asset.
|Date of creation:||1999|
|Contact details of provider:|| Postal: Keplerstr. 17, 72074 Tübingen|
Web page: http://www.uni-tuebingen.de/en/faculties/wirtschafts-und-sozialwissenschaftliche-fakultaet/faecher/wirtschaftswissenschaft.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:zbw:tuedps:168. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.