Related papers: Fixed income portfolio optimisation: Interest rate…
We show that the efficient frontier for a portfolio in which short positions precisely offset the long ones is composed of a pair of straight lines through the origin of the risk-return plane. This unique but important case has been…
Given two random realized returns on an investment, which is to be preferred? This is a fundamental problem in finance that has no definitive solution except in the case one investment always returns more than the other. In 1952 Markowitz…
This paper explores the practical approach to portfolio selection methods for investments. The study delves into portfolio theory, discussing concepts such as expected return, variance, asset correlation, and opportunity sets. It also…
Portfolio optimization methods have evolved significantly since Markowitz introduced the mean-variance framework in 1952. While the theoretical appeal of this approach is undeniable, its practical implementation poses important challenges,…
The Markowitz mean-variance portfolio optimization model aims to balance expected return and risk when investing. However, there is a significant limitation when solving large portfolio optimization problems efficiently: the large and dense…
The concept of Diversification Return (DR) was introduced by Booth and Fama in 1990s and it has been well studied in the finance literature mainly focusing on the various sources it may be generated. However, unlike the classical…
It is well established that in a market with inclusion of a risk-free asset the single-period mean-variance efficient frontier is a straight line tangent to the risky region, a fact that is the very foundation of the classical CAPM. In this…
With the good development in the financial industry, the market starts to catch people's eyes, not only by the diversified investing choices ranging from bonds and stocks to futures and options but also by the general "high-risk,…
We consider the problem of finding the efficient frontier associated with the risk-return portfolio optimization model. We derive the analytical expression of the efficient frontier for a portfolio of N risky assets, and for the case when a…
This paper studies a continuous-time market where an agent, having specified an investment horizon and a targeted terminal mean return, seeks to minimize the variance of the return. The optimal portfolio of such a problem is called…
More than seventy years ago Harry Markowitz formulated portfolio construction as an optimization problem that trades off expected return and risk, defined as the standard deviation of the portfolio returns. Since then the method has been…
Portfolio optimization emerged with the seminal paper of Markowitz (1952). The original mean-variance framework is appealing because it is very efficient from a computational point of view. However, it also has one well-established failing…
We first study the properties of solutions of quadratic programs with linear equality constraints whose parameters are estimated from data in the high-dimensional setting where p, the number of variables in the problem, is of the same order…
Markowitz's celebrated mean--variance portfolio optimization theory assumes that the means and covariances of the underlying asset returns are known. In practice, they are unknown and have to be estimated from historical data. Plugging the…
Mean-variance portfolio decisions that combine prediction and optimisation have been shown to have poor empirical performance. Here, we consider the performance of various shrinkage methods by their efficient frontiers under different…
Utility and risk are two often competing measurements on the investment success. We show that efficient trade-off between these two measurements for investment portfolios happens, in general, on a convex curve in the two dimensional space…
In the knowledge that the ex-post performance of Markowitz efficient portfolios is inferior to that implied ex-ante, we make two contributions to the portfolio selection literature. Firstly, we propose a methodology to identify the region…
The efficient frontier (EF) is a fundamental resource allocation problem where one has to find an optimal portfolio maximizing a reward at a given level of risk. This optimal solution is traditionally found by solving a convex optimization…
We propose a novel asset allocation model using a Markov process of states defined by clustered efficient frontier coefficients. While most research in Markov models of the market characterize regimes using return and volatility, we instead…
We consider the life-cycle optimal portfolio choice problem faced by an agent receiving labor income and allocating her wealth to risky assets and a riskless bond subject to a borrowing constraint. In this paper, to reflect a realistic…