Time-consistent strategies for multi-period portfolio optimization with/without the risk-free asset
type: Item
instance of: scholarly article
title: Time-consistent strategies for multi-period portfolio optimization with/without the risk-free asset
zbMATH Open document ID: 1427.91265
DOI: 10.1155/2018/7563093
author: Zhongbao Zhou
author: Xianghui Liu
author: Helu Xiao
author: TianTian Ren
author: Wenbin Liu
published in: Mathematical Problems in Engineering
publication date: 2019-02-08T00:00:00Z
review text: Summary: The pre-commitment and time-consistent strategies are the two most representative investment strategies for the classic multi-period mean-variance portfolio selection problem. In this paper, we revisit the case in which there exists one risk-free asset in the market and prove that the time-consistent solution is equivalent to the optimal open-loop solution for the classic multi-period mean-variance model. Then, we further derive the explicit time-consistent solution for the classic multi-period mean-variance model only with risky assets, by constructing a novel Lagrange function and using backward induction. Also, we prove that the Sharpe ratio with both risky and risk-free assets strictly dominates that of only with risky assets under the time-consistent strategy setting. After the theoretical investigation, we perform extensive numerical simulations and out-of-sample tests to compare the performance of pre-commitment and time-consistent strategies. The empirical studies shed light on the important question: what is the primary motivation of using the time-consistent investment strategy.
Mathematics Subject Classification ID: 91G10
Mathematics Subject Classification ID: 93E20
zbMATH DE Number: 7019468
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2018/7563093
OpenAlex ID: W2892353207
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Wikidata QID: Q129326556
description: scientific article; zbMATH DE number 7019468