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

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...

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Bibliographic Details
Published in:Journal of Applied Mathematics 2013-01, Vol.2013 (2013), p.473-485-748
Main Author: Wu, Huiling
Format: Article
Language:English
Subjects:
Analysis
Decision making
Economic models
Economic theory
Game theory
Investment policy
Mathematical optimization
Methods
Portfolio management
Studies
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Summary: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.
ISSN:1110-757X
1687-0042
DOI:10.1155/2013/841627