Time-consistent mean-variance portfolio selection in discrete and continuous time (Q1945040)

The paper develops a time-consistent formulation of the problem of the mean-variance portfolio selection (which is a time-inconsistent optimal control problem) in a general semimartingale setting. The formulation is based on a local notion of optimality called local mean-variance efficiency, which gives the way to finding the natural extension of the discrete -time result to the continuous-time case (the first main result of the paper). The second main result of the paper is in providing an alternative characterization of the optimal strategy in terms of the structure condition and the Foelmer-Schweizer decomposition of the mean-variance trade-off. The latter gives necessary and sufficient conditions for the existence of a solution.