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Portfolio Optimization Under a Minimax Rule

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Author Info

  • Xiaoqiang Cai

    ()
    (Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong)

  • Kok-Lay Teo

    ()
    (Department of Applied Mathematics, The Hong Kong Polytechnic University, Kowloon, Hong Kong)

  • Xiaoqi Yang

    ()
    (Department of Applied Mathematics, The Hong Kong Polytechnic University, Kowloon, Hong Kong)

  • Xun Yu Zhou

    ()
    (Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong)

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    Abstract

    This paper provides a new portfolio selection rule. The objective is to minimize the maximum individual risk and we use an l \infty function as the risk measure. We provide an explicit analytical solution for the model and are thus able to plot the entire efficient frontier. Our selection rule is very conservative. One of the features of the solution is that it does not explicitly involve the covariance of the asset returns.

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    File URL: http://dx.doi.org/10.1287/mnsc.46.7.957.12039
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 46 (2000)
    Issue (Month): 7 (July)
    Pages: 957-972

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    Handle: RePEc:inm:ormnsc:v:46:y:2000:i:7:p:957-972

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    Related research

    Keywords: portfolio selection; risk averse measures; bicriteria piecewise linear program; efficient frontier; kuhn-tucker conditions;

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    Cited by:
    1. Deng, Xiao-Tie & Li, Zhong-Fei & Wang, Shou-Yang, 2005. "A minimax portfolio selection strategy with equilibrium," European Journal of Operational Research, Elsevier, vol. 166(1), pages 278-292, October.
    2. W. Hare & J. Nutini, 2013. "A derivative-free approximate gradient sampling algorithm for finite minimax problems," Computational Optimization and Applications, Springer, vol. 56(1), pages 1-38, September.
    3. Chen, Zhiping & Wang, Yi, 2008. "Two-sided coherent risk measures and their application in realistic portfolio optimization," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2667-2673, December.

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