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Optimal Financial Portfolios


  • S. V. Stoyanov
  • S. T. Rachev
  • F. J. Fabozzi


The classes of reward-risk optimization problems that arise from different choices of reward and risk measures are considered. In certain examples the generic problem reduces to linear or quadratic programming problems. An algorithm based on a sequence of convex feasibility problems is given for the general quasi-concave ratio problem. Reward-risk ratios that are appropriate in particular for non-normal assets return distributions and are not quasi-concave are also considered.

Suggested Citation

  • S. V. Stoyanov & S. T. Rachev & F. J. Fabozzi, 2007. "Optimal Financial Portfolios," Applied Mathematical Finance, Taylor & Francis Journals, vol. 14(5), pages 401-436.
  • Handle: RePEc:taf:apmtfi:v:14:y:2007:i:5:p:401-436
    DOI: 10.1080/13504860701255292

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    References listed on IDEAS

    1. Acerbi, Carlo, 2002. "Spectral measures of risk: A coherent representation of subjective risk aversion," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1505-1518, July.
    2. Acerbi Carlo & Simonetti Prospero, 2002. "Portfolio Optimization with Spectral Measures of Risk," Papers cond-mat/0203607,
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    Cited by:

    1. Sergio Ortobelli & Noureddine Kouaissah & Tomáš Tichý, 2017. "On the impact of conditional expectation estimators in portfolio theory," Computational Management Science, Springer, vol. 14(4), pages 535-557, October.
    2. Yuan Hu & Svetlozar T. Rache & Frank J. Fabozzi, 2019. "Modelling Crypto Asset Price Dynamics, Optimal Crypto Portfolio, and Crypto Option Valuation," Papers 1908.05419,
    3. Cesarone, Francesco & Lampariello, Lorenzo & Sagratella, Simone, 2019. "A risk-gain dominance maximization approach to enhanced index tracking," Finance Research Letters, Elsevier, vol. 29(C), pages 231-238.
    4. Maria-Teresa Bosch-Badia & Joan Montllor-Serrats & Maria-Antonia Tarrazon-Rodon, 2017. "Analysing assets’ performance inside a portfolio: From crossed beta to the net risk premium ratio," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1270251-127, January.
    5. Cesarone, Francesco & Mango, Fabiomassimo & Mottura, Carlo Domenico & Ricci, Jacopo Maria & Tardella, Fabio, 2020. "On the stability of portfolio selection models," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 210-234.
    6. Ran Ji & Miguel A. Lejeune & Srinivas Y. Prasad, 2017. "Properties, formulations, and algorithms for portfolio optimization using Mean-Gini criteria," Annals of Operations Research, Springer, vol. 248(1), pages 305-343, January.
    7. Noureddine Kouaissah & Amin Hocine, 2021. "Forecasting systemic risk in portfolio selection: The role of technical trading rules," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(4), pages 708-729, July.
    8. Maziar Sahamkhadam, 2021. "Dynamic copula-based expectile portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 22(3), pages 209-223, May.
    9. Balbás, Alejandro & Balbás, Beatriz & Balbás, Raquel, 2010. "CAPM and APT-like models with risk measures," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1166-1174, June.
    10. Kouaissah, Noureddine, 2021. "Using multivariate stochastic dominance to enhance portfolio selection and warn of financial crises," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 480-493.
    11. Vinent, Orencio Duran & Johnston, Robert J. & Kirwan, Matthew L. & Leroux, Anke D. & Martin, Vance L., 2019. "Coastal dynamics and adaptation to uncertain sea level rise: Optimal portfolios for salt marsh migration," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    12. Krastyu Georgiev & Young Kim & Stoyan Stoyanov, 2015. "Periodic portfolio revision with transaction costs," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 81(3), pages 337-359, June.
    13. Frank Fabozzi & Dashan Huang & Guofu Zhou, 2010. "Robust portfolios: contributions from operations research and finance," Annals of Operations Research, Springer, vol. 176(1), pages 191-220, April.
    14. Hanke, Michael & Penev, Spiridon, 2018. "Comparing large-sample maximum Sharpe ratios and incremental variable testing," European Journal of Operational Research, Elsevier, vol. 265(2), pages 571-579.
    15. Maller, Ross & Roberts, Steven & Tourky, Rabee, 2016. "The large-sample distribution of the maximum Sharpe ratio with and without short sales," Journal of Econometrics, Elsevier, vol. 194(1), pages 138-152.
    16. Thomas Trier Bjerring & Kourosh Marjani Rasmussen & Alex Weissensteiner, 2018. "Portfolio selection under supply chain predictability," Computational Management Science, Springer, vol. 15(2), pages 139-159, June.
    17. Bosch-Badia, Maria Teresa & Montllor-Serrats, Joan & Tarrazon-Rodon, Maria-Antonia, 2014. "Unveiling the embedded coherence in divergent performance rankings," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 154-165.
    18. Sergio Ortobelli & Sebastiano Vitali & Marco Cassader & Tomáš Tichý, 2018. "Portfolio selection strategy for fixed income markets with immunization on average," Annals of Operations Research, Springer, vol. 260(1), pages 395-415, January.
    19. Sergio Ortobelli & Noureddine Kouaissah & Tomáš Tichý, 2019. "On the use of conditional expectation in portfolio selection problems," Annals of Operations Research, Springer, vol. 274(1), pages 501-530, March.
    20. Víctor M. Adame-García & Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero, "undated". "Portfolios in the Ibex 35 index: Alternative methods to the traditional framework, a comparative with the naive diversification in a pre- and post- crisis context," Documentos de Trabajo del ICAE 2015-07, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico, revised Jun 2015.
    21. Víctor Adame-García & Fernando Fernández-Rodríguez & Simón Sosvilla-Rivero, 2017. "“Resolution of optimization problems and construction of efficient portfolios: An application to the Euro Stoxx 50 index"," IREA Working Papers 201702, University of Barcelona, Research Institute of Applied Economics, revised Feb 2017.
    22. Amita Sharma & Sebastian Utz & Aparna Mehra, 2017. "Omega-CVaR portfolio optimization and its worst case analysis," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(2), pages 505-539, March.
    23. Daníelsson, Jón & Jorgensen, Bjørn N. & Samorodnitsky, Gennady & Sarma, Mandira & de Vries, Casper G., 2013. "Fat tails, VaR and subadditivity," Journal of Econometrics, Elsevier, vol. 172(2), pages 283-291.

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