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

• Main Author: Huiling Wu
• Format: Article
• Language: English
• Published: Hindawi Limited 2013-01-01
• Series: Journal of Applied Mathematics
• Online Access: http://dx.doi.org/10.1155/2013/841627

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.