Optimal Dynamic Portfolio Selection: Multiperiod Mean-Variance Formulation

Authors: Li, Duan; Ng, Wan-Lung

Source: Mathematical Finance, Volume 10, Number 3, July 2000 , pp. 387-406(20)

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Abstract:

The mean-variance formulation by Markowitz in the 1950s paved a foundation for modern portfolio selection analysis in a single period. This paper considers an analytical optimal solution to the mean-variance formulation in multiperiod portfolio selection. Specifically, analytical optimal portfolio policy and analytical expression of the mean-variance efficient frontier are derived in this paper for the multiperiod mean-variance formulation. An efficient algorithm is also proposed for finding an optimal portfolio policy to maximize a utility function of the expected value and the variance of the terminal wealth.

Keywords: multiperiod portfolio selection; multiperiod mean-variance formulation; utility function

Document Type: Research article

DOI: http://dx.doi.org/10.1111/1467-9965.00100

Affiliations: 1: Department of Systems Engineering and Engineering Management, Chinese University of Hong Kong

Publication date: 2000-07-01