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Portfolio selection with skewness: A comparison of methods and a generalized one fund result

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  • Briec, Walter
  • Kerstens, Kristiaan
  • Van de Woestyne, Ignace

Abstract

This contribution compares existing and newly developed techniques for geometrically representing mean–variance–skewness portfolio frontiers based on the rather widely adapted methodology of polynomial goal programming (PGP) on the one hand and the more recent approach based on the shortage function on the other hand. Moreover, we explain the working of these different methodologies in detail and provide graphical illustrations in relation to the goal programming literature in operations research. Inspired by these illustrations, we prove two new results: a formal relation between both approaches and a generalization of the well-known one fund separation theorem from traditional mean–variance portfolio theory.

Suggested Citation

  • Briec, Walter & Kerstens, Kristiaan & Van de Woestyne, Ignace, 2013. "Portfolio selection with skewness: A comparison of methods and a generalized one fund result," European Journal of Operational Research, Elsevier, vol. 230(2), pages 412-421.
  • Handle: RePEc:eee:ejores:v:230:y:2013:i:2:p:412-421
    DOI: 10.1016/j.ejor.2013.04.021
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    Cited by:

    1. Nalpas, Nicolas & Simar, Léopold & Vanhems, Anne, 2016. "Portfolio Selection in a Multi-Input Multi-Output Setting: a Simple Monte-Carlo-FDH Algorithm," TSE Working Papers 16-648, Toulouse School of Economics (TSE).
    2. repec:eee:ejores:v:262:y:2017:i:3:p:1164-1180 is not listed on IDEAS
    3. Brandouy, Olivier & Kerstens, Kristiaan & Van de Woestyne, Ignace, 2015. "Frontier-based vs. traditional mutual fund ratings: A first backtesting analysis," European Journal of Operational Research, Elsevier, vol. 242(1), pages 332-342.
    4. Mellios, Constantin & Six, Pierre & Lai, Anh Ngoc, 2016. "Dynamic speculation and hedging in commodity futures markets with a stochastic convenience yield," European Journal of Operational Research, Elsevier, vol. 250(2), pages 493-504.
    5. Massimiliano Kaucic & Roberto Daris, 2015. "Multi-Objective Stochastic Optimization Programs for a Non-Life Insurance Company under Solvency Constraints," Risks, MDPI, Open Access Journal, vol. 3(3), pages 1-30, September.

    More about this item

    Keywords

    Shortage function; PGP; Efficient frontier; Mean–variance; Mean–variance–skewness;

    JEL classification:

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

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