Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098088 | Journal of Economic Dynamics and Control | 2016 | 24 Pages |
Abstract
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 contained 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 problems. Since the time-consistent and the pre-commitment strategies generate different terminal wealth distributions, time-consistency is not always inferior to pre-commitment.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
F. Cong, C.W. Oosterlee,