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Portfolio Selection with Skewness

In: Numerical Methods in Finance

Author

Listed:
  • Phelim Boyle
  • Brian Ding

Abstract

Konno et al. (1993) proposed a method for incorporating skewness into the portfolio optimization problem. This paper extends their technique and proposes a modification which leads to portfolios with improved characteristics. The model is then used to analyze the potential for put options to increase the skewness of portfolios. This strategy is tested with historical returns on a portfolio of TSE stocks. Compared to the Konno et al. (1993) approach our resulting portfolio has higher skewness and lower variance; with expected return being equal.

Suggested Citation

  • Phelim Boyle & Brian Ding, 2005. "Portfolio Selection with Skewness," Springer Books, in: Michèle Breton & Hatem Ben-Ameur (ed.), Numerical Methods in Finance, chapter 0, pages 227-240, Springer.
    • Handle: RePEc:spr:sprchp:978-0-387-25118-9_11
    DOI: 10.1007/0-387-25118-9_11
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    Cited by:

    1. Villegas, Andrés M. & Medaglia, Andrés L. & Zuluaga, Luis F., 2012. "Computing bounds on the expected payoff of Alternative Risk Transfer products," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 271-281.
    2. Briec, Walter & Kerstens, Kristiaan & Van de Woestyne, Ignace, 2011. "Portfolio Selection with Skewness: A Comparison and a Generalized Two Fund Separation Result," Working Papers 2011/09, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.

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