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Dantzig Type Optimization Method with Applications to Portfolio Selection

Author

Listed:
  • Seyoung Park

    (Department of Statistics, Sungkyunkwan University, Jongno-gu, Seoul 03063, Korea
    These authors contributed equally to this work.)

  • Eun Ryung Lee

    (Department of Statistics, Sungkyunkwan University, Jongno-gu, Seoul 03063, Korea
    These authors contributed equally to this work.)

  • Sungchul Lee

    (Department of Mathematics and Computational Science & Engineering, Yonsei University, 50 Yonsei-ro Seodaemun-gu, Seoul 03722, Korea)

  • Geonwoo Kim

    (School of Liberal Arts, Seoul National University of Science and Technology, Seoul 01811, Korea)

Abstract

This paper investigates a novel optimization problem motivated by sparse, sustainable and stable portfolio selection. The existing benchmark portfolio via the Dantzig type optimization is used to construct a sparse, sustainable and stable portfolio. Based on the formulations, this paper proposes two portfolio selection methods, west and north portfolio selection, and investigates their empirical properties. Numerical results presented for 12 datasets and various simulated data show that the west selection can reduce risk, and the north selection may outperform the benchmark as to risk-adjusted returns (based on, e.g., information ratio and Sharpe ratio).

Suggested Citation

  • Seyoung Park & Eun Ryung Lee & Sungchul Lee & Geonwoo Kim, 2019. "Dantzig Type Optimization Method with Applications to Portfolio Selection," Sustainability, MDPI, vol. 11(11), pages 1-32, June.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:11:p:3216-:d:238590
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    1. Todor Stoilov & Krasimira Stoilova & Miroslav Vladimirov, 2021. "Explicit Value at Risk Goal Function in Bi-Level Portfolio Problem for Financial Sustainability," Sustainability, MDPI, vol. 13(4), pages 1-14, February.

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