Discrete and continuous time dynamic mean-variance analysis

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tübinger Diskussionsbeiträge ; No. 168

Classification and Topics

• Classification: Wirtschaft ; Optimization Techniques; Programming Models; Dynamic Analysis ; Portfolio Choice; Investment Decisions
• Subject: Dynamic Optimization ; Growth Optimum Portfolio ; Mean-Variance-Efficiency ; Minimum Deviation ; Portfolio Selection ; Two-Fund Theorem ; Portfolio-Management ; Dynamische Optimierung ; Theorie ; Maßzahl

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Reiss, Ariane
• Event: Veröffentlichung
• (who): Eberhard Karls Universität Tübingen, Wirtschaftswissenschaftliche Fakultät
• (where): Tübingen
• (when): 1999

Further information

• Handle: http://hdl.handle.net/10419/47531
• URN: urn:nbn:de:bsz:21-opus-21121
• Last update: 10.03.2025, 11:44 AM CET