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Title: Better than pre-committed optimal mean-variance policy in a jump diffusion market
Authors: Shi, Y
Li, X 
Cui, X
Keywords: Jump diffusion market
Mean field approach
Pre-committed optimal mean-variance policy
Semi-self-financing revised policy
Time consistency in efficiency
Issue Date: 2017
Publisher: Springer
Source: Mathematical methods of operations research, 2017, p. 1-21 How to cite?
Journal: Mathematical methods of operations research 
Abstract: Dynamic mean-variance investment model can not be solved by dynamic programming directly due to the nonseparable structure of variance minimization problem. Instead of adopting embedding scheme, Lagrangian duality approach or mean-variance hedging approach, we transfer the model into mean field mean-variance formulation and derive the explicit pre-committed optimal mean-variance policy in a jump diffusion market. Similar to multi-period setting, the pre-committed optimal mean-variance policy is not time consistent in efficiency. When the wealth level of the investor exceeds some pre-given level, following pre-committed optimal mean-variance policy leads to irrational investment behaviors. Thus, we propose a semi-self-financing revised policy, in which the investor is allowed to withdraw partial of his wealth out of the market. And show the revised policy has a better investment performance in the sense of achieving the same mean-variance pair as pre-committed policy and receiving a nonnegative free cash flow stream.
ISSN: 1432-2994
EISSN: 1432-5217
DOI: 10.1007/s00186-017-0572-6
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