2016-09-01
On pre-commitment aspects of a time-consistent strategy for a mean-variance investor
Publication
Publication
Journal of Economic Dynamics and Control , Volume 70 p. 178- 193
In this paper, a link between a time-consistent and a pre-commitment investment
strategy is established. We define an implied investment target, which is implicitly con- tained in
a time-consistent strategy at a given time step and wealth level. By imposing the implied
investment target at the initial time step on a time-consistent strategy, we form a hybrid strategy
which may generate better mean-variance efficient frontiers than the time-consistent strategy. We
extend the numerical algorithm proposed in Cong and Oosterlee (2016b) to solve constrained
time-consistent mean-variance optimization pro- blems. Since the time-consistent and the
pre-commitment strategies generate different terminal wealth distributions, time-consistency is not
always inferior to pre-commitment.
Additional Metadata | |
---|---|
, , , , | |
Elsevier | |
doi.org/10.1016/j.jedc.2016.07.010 | |
Journal of Economic Dynamics and Control | |
Organisation | Scientific Computing |
Cong, F., & Oosterlee, K. (2016). On pre-commitment aspects of a time-consistent strategy for a mean-variance investor. Journal of Economic Dynamics and Control, 70, 178–193. doi:10.1016/j.jedc.2016.07.010 |