Portfolio optimization reconsidered: a generalisation
A general model of one-period portfolio optimization is presented in a new setting: financial leverage (i.e. margin accounts), long-buying/short-selling and a large number of assets are introduced. A multiple equilibrium solution is found, utilizing TAP equations (based on random matrices), a tool from physical spin glass analysis. This solution, however, is difficult to integrate into a strategic asset-allocation framework. In order to bypass these hurdles, an alternative deterministic approach - based on oscillatory behavioral expectations à la Krugman - is proposed in a Montecarlo context.
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|Date of creation:||2000|
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