We consider robust pre-commitment and time-consistent mean-variance optimal asset allocation strategies, that are required to perform well also in a worst-case scenario regarding the development of the asset price. We show that worst-case scenarios for both strategies can be found by solving a specific equation each time step. In the unconstrained asset allocation case, the robust pre-commitment as well as the time-consistent strategy are identical to the corresponding robust myopic strategies, by which investors perform robust portfolio control only for one time step and conduct a risk-free strategy afterwards. In the experiments, the robustness of pre-commitment and time-consistent strategies is studied in detail. Our analysis and numerical results indicate that the time-consistent allocation strategy is more stable when possible incorrect assumptions regarding the future asset development are modeled and taken into account. In some situations, the time-consistent strategy can even generate higher efficient frontiers than the pre-commitment strategy (which is counter-intuitive), because the time-consistency restriction appears to protect an investor in such a situation

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International Journal of Theoretical and Applied Finance
Scientific Computing

Cong, F., & Oosterlee, K. (2017). On robust multi-period pre-commitment and time-consistent mean-variance portfolio optimization. International Journal of Theoretical and Applied Finance, 20(7), 1750049:1–1750049:2. doi:10.1142/S0219024917500492