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# Replica approach to mean-variance portfolio optimization

## Author

Listed:
• Istvan Varga-Haszonits
• Fabio Caccioli
• Imre Kondor

We consider the problem of mean-variance portfolio optimization for a generic covariance matrix subject to the budget constraint and the constraint for the expected return, with the application of the replica method borrowed from the statistical physics of disordered systems. We find that the replica symmetry of the solution does not need to be assumed, but emerges as the unique solution of the optimization problem. We also check the stability of this solution and find that the eigenvalues of the Hessian are positive for $r=N/T ## Suggested Citation • Istvan Varga-Haszonits & Fabio Caccioli & Imre Kondor, 2016. "Replica approach to mean-variance portfolio optimization," Papers 1606.08679, arXiv.org. • Handle: RePEc:arx:papers:1606.08679 as ## Download full text from publisher File URL: http://arxiv.org/pdf/1606.08679 File Function: Latest version Download Restriction: no ---><--- ## References listed on IDEAS as 1. Frahm, Gabriel & Memmel, Christoph, 2010. 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"Noise sensitivity of portfolio selection under various risk measures," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1545-1573, May. Full references (including those not matched with items on IDEAS) ## Citations Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item. as Cited by: 1. Nava, Noemi & Di Matteo, T. & Aste, Tomaso, 2018. "Dynamic correlations at different time-scales with empirical mode decomposition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 502(C), pages 534-544. 2. Shinzato, Takashi, 2018. "Maximizing and minimizing investment concentration with constraints of budget and investment risk," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 490(C), pages 986-993. 3. Li, Yan & Jiang, Xiong-Fei & Tian, Yue & Li, Sai-Ping & Zheng, Bo, 2019. "Portfolio optimization based on network topology," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 515(C), pages 671-681. 4. Nava, Noemi & Di Matteo, Tiziana & Aste, Tomaso, 2018. "Financial time series forecasting using empirical mode decomposition and support vector regression," LSE Research Online Documents on Economics 91028, London School of Economics and Political Science, LSE Library. 5. Noemi Nava & Tiziana Di Matteo & Tomaso Aste, 2018. "Financial Time Series Forecasting Using Empirical Mode Decomposition and Support Vector Regression," Risks, MDPI, vol. 6(1), pages 1-21, February. 6. Tomaso Aste & T. Di Matteo, 2017. "Sparse Causality Network Retrieval from Short Time Series," Complexity, Hindawi, vol. 2017, pages 1-13, November. 7. Jérôme Garnier-Brun & Michael Benzaquen & Stefano Ciliberti & Jean-Philippe Bouchaud, 2021. "A new spin on optimal portfolios and ecological equilibria," Post-Print hal-03378915, HAL. 8. Imre Kondor & G'abor Papp & Fabio Caccioli, 2017. "Analytic approach to variance optimization under an$\ell_1$constraint," Papers 1709.08755, arXiv.org, revised Jul 2018. 9. Papp, Gábor & Kondor, Imre & Caccioli, Fabio, 2021. "Optimizing expected shortfall under an ℓ1 constraint—an analytic approach," LSE Research Online Documents on Economics 111051, London School of Economics and Political Science, LSE Library. 10. Imre Kondor & G'abor Papp & Fabio Caccioli, 2016. "Analytic solution to variance optimization with no short-selling," Papers 1612.07067, arXiv.org, revised Jan 2017. ## Most related items These are the items that most often cite the same works as this one and are cited by the same works as this one. 1. Varga-Haszonits, Istvan & Caccioli, Fabio & Kondor, Imre, 2016. "Replica approach to mean-variance portfolio optimization," LSE Research Online Documents on Economics 68955, London School of Economics and Political Science, LSE Library. 2. Caccioli, Fabio & Kondor, Imre & Papp, Gábor, 2015. "Portfolio optimization under expected shortfall: contour maps of estimation error," LSE Research Online Documents on Economics 65096, London School of Economics and Political Science, LSE Library. 3. Imre Kondor & G'abor Papp & Fabio Caccioli, 2016. "Analytic solution to variance optimization with no short-selling," Papers 1612.07067, arXiv.org, revised Jan 2017. 4. Fabio Caccioli & Imre Kondor & Matteo Marsili & Susanne Still, 2014. "$L_p$regularized portfolio optimization," Papers 1404.4040, arXiv.org. 5. Fabio Caccioli & Imre Kondor & Matteo Marsili & Susanne Still, 2016. "Liquidity Risk And Instabilities In Portfolio Optimization," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(05), pages 1-28, August. 6. Kourtis, Apostolos & Dotsis, George & Markellos, Raphael N., 2012. 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