Semimartingale Theory of Monotone Mean-Variance Portfolio Allocation

Mathematical Finance 30(3), 1168-1178, 2020

9 Pages Posted: 9 Apr 2019 Last revised: 1 Jul 2020

See all articles by Aleš Černý

Aleš Černý

Bayes Business School, City, University of London

Date Written: January 6, 2019

Abstract

We study dynamic optimal portfolio allocation for monotone mean-variance preferences in a general semimartingale model. Armed with new results in this area we revisit the work of Cui, Li, Wang and Zhu (2012, MAFI) and fully characterize the circumstances under which one can set aside a non-negative cash flow while simultaneously improving the mean-variance efficiency of the left-over wealth. The paper analyzes, for the first time, the monotone hull of the Sharpe ratio and highlights its relevance to the problem at hand.

Keywords: monotone mean–variance, monotone Sharpe ratio, free cash-flow stream

JEL Classification: G11, C61

Suggested Citation

Černý, Aleš, Semimartingale Theory of Monotone Mean-Variance Portfolio Allocation (January 6, 2019). Mathematical Finance 30(3), 1168-1178, 2020, Available at SSRN: https://ssrn.com/abstract=3353703 or http://dx.doi.org/10.2139/ssrn.3353703

Aleš Černý (Contact Author)

Bayes Business School, City, University of London

Northampton Square
London, EC1V 0HB
United Kingdom

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