Seminar: Mean-variance policy, Time consistency in efficiency and minimum-variance signed supermartingale measure for a discrete-time cone constrained market


    Department of Systems Engineering and Engineering Management
            The Chinese University of Hong Kong


Title     : Mean-variance policy, Time consistency in efficiency and minimum-variance signed supermartingale measure for a discrete-time cone constrained market

Speaker    : Prof. Li Duan
Date       : Sept. 28, Friday
Time       : 4:30 p.m. - 5:30 p.m.
Venue      : Room 513
             William M.W. Mong Engineering Building

The discrete-time mean-variance portfolio selection formulation, a representative of general dynamic mean-risk portfolio selection problems, does not satisfy time consistency in efficiency (TCIE) in general, i.e., a truncated pre-committed efficient policy may become inefficient when considering the corresponding truncated problem, thus stimulating investors\' irrational
investment behavior. We investigate analytically effects of portfolio constraints on time consistency of efficiency for convex cone constrained markets. More specifically, we derive the semi-analytical expressions of the pre-committed efficient mean-variance policy and the minimum-variance signed supermartingale measure (VSSM) and reveal their close relationship. Our analysis shows that the pre-committed discrete-time efficient mean-variance policy satisfies TCIE if and only if the conditional expectation of VSSM\'s density (respect to the original probability measure) is nonnegative, or once the conditional expectation becomes negative, it remains the same negative value until the terminal time. Our finding indicates that the property of time consistency in efficiency only depends on the basic market setting, including portfolio constraints, and motivates us to establish a general solution framework in constructing TCIE dynamic portfolio selection problem formulations by introducing suitable portfolio constraints.

Duan Li was born in Shanghai, China. He graduated from Fudan University and received the M.E. degree in automatic control from Shanghai Jiaotong University, and the Ph.D. degree in systems engineering from Case Western Reserve University. From 1987 to 1994, he was a faculty member at Department of Systems Engineering, the University of Virginia, where he also served as Associate Director of Center for Risk Management of Engineering Systems. He joined the Department of Systems Engineering and Engineering Management, the Chinese University of Hong Kong, in December 1994, where he is currently Patrick Huen Wing Ming Professor of Systems Engineering
and Engineering Managment and where he served as Department Chairman from 2003 to 2012. Duan Li\'s research interests include optimization, optimal control, financial engineering and operations research. Duan Li was an Associate Editor of IEEE Transactions on Automatic Control and has been an editorial board member or a guest editor for many other journals, including Journal of Global
Optimization and IIE Transactions on Operations Engineering. He organized several international conferences as a co-chair. He is currently Vice President of Chinese National Society of Mathematical Programming, Vice President of Chinese Society of Financial Systems Engineering, and Academic Committee Member, Chinese National Research Center of Mathematics and Cross-Disciplinary Science, Department of Finance and Economics.

************************* ALL ARE WELCOME ************************

Host         : Prof. Hong Cheng
Tel          : (852) 3943-8300
Email        :
Enquiries    : Prof. Hong Cheng
               Department of Systems Engineering and Engineering Management
Website      :
Email        :

Friday, September 28, 2012 - 08:30 to 09:30