Dynamic Mean-Risk Asset Allocation and Myopic Strategies: A Universal Portfolio Rule

In a market that consists of multiple stocks and one risk-free asset whose expected return rates and volatility are deterministic, we study a continuous-time mean-risk portfolio selection problem in which an agent is subject... [ view full abstract ]

In a market that consists of multiple stocks and one risk-free asset whose expected return rates and volatility are deterministic, we study a continuous-time mean-risk portfolio selection problem in which an agent is subject to a constraint that the expectation of her terminal wealth must exceed a target and minimizes the risk of her investment, which can be the variance or tail risk of her terminal wealth. Setting the target to be proportion to the agent's current wealth, we derive the equilibrium policy in closed form, and this policy is myopic and does not depend on the risk measure ...