The paper compares three portfolio optimization models. Modern portfolio theory (MPT) is a short-horizon volatility model. The relevant time horizon is the sampling interval. MPT is myopic and implies that investors are not concerned with long-term variance or mean-reversion. Intertemporal...

Digital Portfolio Theory (DPT) permits investors to control their risk exposure with respect to multiple time horizons. DPT is a theoretical enhancement for estimating efficient portfolios that relaxes the normal distribution and zero autocorrelation assumptions of Modern Portfolio Theory (MPT)...