Continuous-time mean-variance efficiency: the 80% rule

By Xun Li, Xun Yu Zhou. 2006

59 citations recorded by the source corpus.

This paper studies a continuous-time market where an agent, having specified an investment horizon and a targeted terminal mean return, seeks to minimize the variance of the return. The optimal portfolio of such a problem is called mean-variance efficient \`{a} la Markowitz. It is shown that, when the market coefficients are deterministic functions of time, a mean-variance efficient portfolio realizes the (discounted) targeted return on or before the terminal date with a probability greater than 0.8072. This number is universal irrespective of the market parameters, the targeted return and the length of the investment horizon.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e1e36856a5862502a4c23372a0208b03cff58ee9

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Citations in the corpus

BETTER THAN DYNAMIC MEAN‐VARIANCE: TIME INCONSISTENCY AND FREE CASH FLOW STREAM (2012, background): “…selection theory, see for examples, Li, Zhou, and Lim (2001), Lim and Zhou (2002), Zhou and Yin (2003), Hu and Zhou (2005), Bielecki et al. (2005), Li and Zhou (2006), Chiu and Li (2006), Xiong and Zhou (2007) in continuous-time settings and Leippold, Trojani, and Vanini (2004), Zhu, Li, and Wang…”
Numerical solution of the Hamilton-Jacobi-Bellman formulation for continuous time mean variance asset allocation (2010, unknown): “This problem has been widely studied (Merton, 1971; Zhou and Li, 2000; Li and Ng, 2000; Li et al., 2002; Bielecki et al., 2005; Li and Zhou, 2006).”
Thou shalt buy and hold (2008, methodology): “The initial impetus to investigating this model was the combination of two papers by Shiryaev (2002) and Li and Zhou (2006), which at first glance seemed to be rather unrelated.”