Time-consistency in the mean-variance problem: A new perspective (2301.11218v1)

Abstract: We investigate discrete-time mean-variance portfolio selection problems viewed as a Markov decision process. We transform the problems into a new model with deterministic transition function for which the BeLLMan optimality equation holds. In this way, we can solve the problem recursively and obtain a time-consistent solution, that is an optimal solution that meets the BeLLMan optimality principle. We apply our technique for solving explicitly a more general framework.