Article ID Journal Published Year Pages File Type
5076345 Insurance: Mathematics and Economics 2016 37 Pages PDF
Abstract
In this paper, we propose a multi-period portfolio optimization model with stochastic cash flows. Under the mean-variance preference, we derive the pre-commitment and time-consistent investment strategies by applying the embedding scheme and backward induction approach, respectively. We show that the time-consistent strategy is identical to the optimal open-loop strategy. Also, under the exponential utility preference, we develop the optimal strategy for multi-period investment, which is time-consistent. We show that the above two time-consistent strategies are equivalent in some cases. We compare the pre-commitment and time-consistent strategies under different situations with some numerical simulations. The results indicate that the time-consistent strategy is more stable and secure than pre-commitment strategy under the generalized mean-variance criterion.
Related Topics
Physical Sciences and Engineering Mathematics Statistics and Probability
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