No arbitrage and a linear portfolio selection model
We propose a linear bi-objective optimization approach to the problem of finding a portfolio that maximizes average excess return with respect to a benchmark index while minimizing underperformance over a learning period. We establish some theoretical results linking classical No Arbitrage conditions to the existence of a feasible portfolio for our model that strictly outperforms the index. Empirical analyses on publicly available real-world financial datasets show the effectiveness of the model and confirm the described theoretical results.
Volume (Year): 33 (2013)
Issue (Month): 2 ()
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Center for Economic Research (RECent)
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