Martin Schweizer

ETH Zurich

Mean-variance portfolio choice and time-consistency

Abstract: It is well known that the classical problem of choosing a mean-variance optimal portfolio in a financial market leads to problems of inconsistency over time if one tries to embed it into an intertemporally dynamic setting. This is due to the variance term which destroys the dynamic programming property well known from optimal stochastic control. In recent work, C. Czichowsky has shown how this can be overcome by a new formulation of the optimisation criterion. We shall explain the ideas and main results from that work and also point out a remarkable Swiss-Swedish connection.