English

Generalized distance to a simplex and a new geometrical method for portfolio optimization

Portfolio Management 2020-09-21 v1

Abstract

Risk aversion plays a significant and central role in investors' decisions in the process of developing a portfolio. In this framework of portfolio optimization we determine the portfolio that possesses the minimal risk by using a new geometrical method. For this purpose, we elaborate an algorithm that enables us to compute any generalized Euclidean distance to a standard simplex. With this new approach, we are able to treat the case of portfolio optimization without short-selling in its entirety, and we also recover in geometrical terms the well-known results on portfolio optimization with allowed short-selling. Then, we apply our results in order to determine which convex combination of the CAC 40 stocks possesses the lowest risk: not only we get a very low risk compared to the index, but we also get a return rate that is almost three times better than the one of the index.

Keywords

Cite

@article{arxiv.2009.08826,
  title  = {Generalized distance to a simplex and a new geometrical method for portfolio optimization},
  author = {Frédéric Butin},
  journal= {arXiv preprint arXiv:2009.08826},
  year   = {2020}
}

Comments

18 pages, 5 figures

R2 v1 2026-06-23T18:38:24.946Z