NDLI: Portfolio optimization under l/sub /spl infin// risk measure

Content Provider	IEEE Xplore Digital Library
Author	Cai, X. Teo, K.L. Yang, X.Q. Zhou, X.Y.
Copyright Year	1996
Description	Author affiliation: Dept. of Syst. Eng., Chinese Univ. of Hong Kong, Shatin, Hong Kong (Cai, X.)
Abstract	In this paper, a new model for portfolio selection is introduced to address the situation where a risk averse investor wants to minimize the maximum individual risk among assets to be invested. The model uses an l/sub /spl infin// function as a risk aversion measure. This differs from previous studies where either an l/sub 2/ function or an l/sub 1/ function is suggested, which may not model the concern of very cautious investors properly. We formulate our problem as a bi-criteria piecewise linear program, where one criterion is to minimize the l/sub /spl infin// risk function while the other is to maximize the total expected return. This bi-criteria optimization problem is converted into an equivalent scalarized problem with a single combined criterion. An interesting finding is that an optimal solution to the scalarized optimization problem can be derived analytically. The solution exhibits a simple structure, which selects successively assets to be invested in accordance with the ratio of the difference in their return rates to their risks.
Starting Page	3682
Ending Page	3687
File Size	529910
Page Count	6
File Format	PDF
ISBN	0780335902
ISSN	01912216
DOI	10.1109/CDC.1996.577217
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	1996-12-13
Publisher Place	Japan
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Portfolios Investments Covariance matrix Piecewise linear techniques Quadratic programming User-generated content Systems engineering and theory Mathematics Australia Mathematical model
Content Type	Text
Resource Type	Article

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