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

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

2007-02-09

arxiv.org/abs/math/0702249v1

Annals of Applied Probability 2006, Vol. 16, No. 4, 1751-1763

Mathematics

Probability

Published at http://dx.doi.org/10.1214/105051606000000349 in the Annals of Applied Probability (http://www.imstat.org/aap/) by

Scientific paper

10.1214/105051606000000349

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.

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