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Uses of Variance and Lower Partial Moment Measures for Portfolio Optimization

Author

Listed:
  • Güven Sayilgan
  • Arma Deger Mut

Abstract

Portfolio optimization is mainly a multi-objective optimization problem that aims to maximize expected return while minimizing risk. It is important to define the meaning of these parameters accurately, in terms of validity that is acquired by the solution of the problem. In this study, portfolio optimization is implemented through two downside risk measures, semi-variance and lower partial moment, which are stated by researchers to be better representation for investors risk perception. Genetic algorithms, which are among the heuristic computational methods, are used to achieve pareto-efficient portfolios. The implementation is tested by historical data of the shares that are authorized to Istanbul Stock Exchange (ISE) 100 Index, and it is observed that the efficient portfolios achieved by the implementation are consistent with expected results.

Suggested Citation

  • Güven Sayilgan & Arma Deger Mut, 2010. "Uses of Variance and Lower Partial Moment Measures for Portfolio Optimization," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 4(1), pages 47-73.
    • Handle: RePEc:bdd:journl:v:4:y:2010:i:1:p:47-73
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    Citations

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    Cited by:

    1. Ruili Sun & Tiefeng Ma & Shuangzhe Liu & Milind Sathye, 2019. "Improved Covariance Matrix Estimation for Portfolio Risk Measurement: A Review," JRFM, MDPI, vol. 12(1), pages 1-34, March.
    2. Barinova, V.A. (Баринова, В.А.) & Laitner, Skip (Лайтнер, Скип) & Lashina, T.A. (Ланьшина, Т.А.), 2016. "Prospects for Renewable Energy Development in Russia and the World [Перспективы Развития Возобновляемой Энергетики В России И Мире]," Working Papers 1857, Russian Presidential Academy of National Economy and Public Administration.

    More about this item

    Keywords

    Portfolio Optimization; Lower Partial Moment; Semivariance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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