Discrete Time Portfolio Optimization with Regular Periodic Investments

Abstract

The goal is to compare dollar-cost averaging and modified value averaging strategies, by maximizing certain evaluation criteria: mean-to-standard-deviation ratio of terminal values, dominance probability and Sharpe ratio of returns. The tasks include building simulation models for both of the investment strategies and the assessment of the strategies. We found that value averaging strategy modified to have fixed investments shows better performance, compared to dollar-cost averaging stategy, on the long-term investment horizon, especially when the er parameter is set close to mean market return over the investment period.