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A Mean-Variance-Skewness Model: Algorithm And Applications

Author

Listed:
  • HIROSHI KONNO

    (Department of Industrial and Systems Engineering, Chuo University, 1-13-27 Kasuga, Bunkyo-Ku, Tokyo 112-8551, Japan)

  • REI YAMAMOTO

    (Department of Industrial and Systems Engineering, Chuo University, 1-13-27 Kasuga, Bunkyo-Ku, Tokyo 112-8551, Japan;
    MTB Investment Technology Institute Co. Ltd., Japan)

Abstract

We will show that a mean-variance-skewness portfolio optimization model, a direct extension of the classical mean-variance model can be solved exactly and fast by using the state-of-the-art integer programming approach. This implies that we can now calculate a portfolio with maximal expected utility for any decreasing risk averse utility function.Also, we will show that this model can be used as a practical tool for constructing a portfolio when the asset returns follow skewed distribution. As an example, we apply this model to construct an index plus alpha portfolio.

Suggested Citation

  • Hiroshi Konno & Rei Yamamoto, 2005. "A Mean-Variance-Skewness Model: Algorithm And Applications," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(04), pages 409-423.
    • Handle: RePEc:wsi:ijtafx:v:08:y:2005:i:04:n:s0219024905003116
    DOI: 10.1142/S0219024905003116
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    Citations

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    Cited by:

    1. Farshad Noravesh & Kristiaan Kerstens, 2022. "Some connections between higher moments portfolio optimization methods," Papers 2201.00205, arXiv.org.
    2. Yuichi Takano & Renata Sotirov, 2012. "A polynomial optimization approach to constant rebalanced portfolio selection," Computational Optimization and Applications, Springer, vol. 52(3), pages 645-666, July.
    3. Toshiki Sato & Yuichi Takano & Ryuhei Miyashiro & Akiko Yoshise, 2016. "Feature subset selection for logistic regression via mixed integer optimization," Computational Optimization and Applications, Springer, vol. 64(3), pages 865-880, July.
    4. Mikl'os R'asonyi & Hasanjan Sayit, 2022. "Exponential utility maximization in small/large financial markets," Papers 2208.06549, arXiv.org, revised Feb 2024.

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