Single-Period Mean: Variance Analysis in a Changing World

Ideally, financial analysts would like to be able to optimize a consumption-- investment game with many securities, many time periods, transaction costs, and changing probability distributions. We cannot. For a small optimizable version of such a game, we consider in this article how much would be l...

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Bibliographic Details
Published inFinancial analysts journal Vol. 59; no. 2; pp. 30 - 44
Main Authors Markowitz, Harry M., Erik L. van Dijk
Format Journal Article
LanguageEnglish
Published Charlottesville The Association for Investment Management and Research 01.03.2003
Taylor & Francis Ltd
Subjects
Approximation
Capital market
Cash
Costs
Dynamic programming
Expected utility
Expected values
Finance
Financial analysis
Financial portfolios
Forecasting models
Games
Heuristic
Heuristics
Investment policy
Investments
Investors
Linear programming
Management science
Mathematical models
Modeling
Monte Carlo simulation
Operations research
Optimization
Portfolio Management
Quantitative analysis
Rates of return
Stock exchange
Stock returns
Transaction costs
Utilities
Utility functions
Variance analysis
United States > US
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Summary:Ideally, financial analysts would like to be able to optimize a consumption-- investment game with many securities, many time periods, transaction costs, and changing probability distributions. We cannot. For a small optimizable version of such a game, we consider in this article how much would be lost by following one or another heuristic that could be easily scaled to handle large games. For the games considered, a particular mean-variance heuristic does almost as well as the optimum strategy.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v59.n2.2512