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Title:   Discrete and continuous time dynamic meanvariance analysis 
Authors:   Reiss, Ariane 
Issue Date:   1999 
Series/Report no.:   Tübinger Diskussionsbeiträge 168 
Abstract:   Contrary to static meanvariance analysis, very few papers have dealt with dynamic meanvariance analysis. Here, the meanvariance efficient selffinancing portfolio strategy is derived for n risky assets in discrete and continuous time. In the discrete setting, the resulting portfolio is meanvariance 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 meanvariance efficient strategy and a strategy that ensures optimum diversification across time. In continuous time, a dynamically meanvariance 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 twofund strategy in the growth optimum portfolio and the riskfree asset. 
Subjects:   Dynamic Optimization Growth Optimum Portfolio MeanVarianceEfficiency Minimum Deviation Portfolio Selection TwoFund Theorem 
JEL:   F94 J44 
Persistent Identifier of the first edition:   urn:nbn:de:bsz:21opus21121 
Document Type:   Working Paper 
Appears in Collections:   Tübinger Diskussionsbeiträge, Universität Tübingen

 

 
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