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Abstract

In this chapter we study a multi-period version of the classical mean-variance problem. The mean-variance problem is a cornerstone of modern portfolio theory. An agent faces the trade-off between higher returns and higher risk, the latter measured as variance. The formulation is both simple and intuitive, and it is widely used both in financial industry and academia. Initially formulated as a static problem, it has been widely studied in a pre-committed setup or for myopic agents that optimize only for the next period, step by step. When applying the theory developed above, we can study the intertemporal hedging that arises in a fully dynamic setting.

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Björk, T., Khapko, M., Murgoci, A. (2021). Mean-Variance Portfolios. In: Time-Inconsistent Control Theory with Finance Applications. Springer Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-81843-2_8

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