NDLI: Quadratic Programming for Large-Scale Portfolio Optimization

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Quadratic Programming for Large-Scale Portfolio Optimization

Content Provider	Scilit
Author	Best, Michael J. Kale, Jivendra K.
Copyright Year	2000
Description	QUADRATIC PROGRAMMING (QP) IS THE MOST WIDELY USED METHOD for portfolio construction. It is most effective when the assert return distributions are approximately normal. This method works particularly well for large stock and bond portfolios which can contain several thousand assets and where risk is typically measured relative to a benchmark. The requirements for portfolio constructions can be quite complex. In addition to the usual budget constraint, a portfolio may be required to have upper and lower bounds on all assets. The portfolio may be required to satisfy constraints such as limits on industry holdings, beta, or dividend yield for stock portfolios, and limit on issuers holdings, duration, and convexity for bond portfolios. Accounting for the transactions costs of trading is necessary where these costs increase with the size of the transaction because of the price impact of trades. Incorporation of some, or all of these features, can result in a quadratic programming (QP) problem which is simply too large for practical use with a general purpose quadratic programming method. However, general purpose QP algorithms can be specialized to take account of the particular structure of portfolio problems enabling large problems to be solved in a practical way. Here, we give an overview of three things: (1) formulation of the portfolio optimization problem as a QP, (2) QP solution methods, and (3) specialization of QP algorithms to solve large-scale portfolio optimization problems. Book Name: Financial Services Information Systems
Related Links	https://content.taylorfrancis.com/books/download?dac=C2014-0-34934-X&isbn=9780429225246&doi=10.1201/9780203997611-33&format=pdf
Ending Page	548
Page Count	18
Starting Page	531
DOI	10.1201/9780203997611-33
Language	English
Publisher	Informa UK Limited
Publisher Date	2000-03-24
Access Restriction	Open
Subject Keyword	Book Name: Financial Services Information Systems Operations Research and Management Science Optimization Transactions Portfolio Constraint Quadratic Programming Solve Holdings Specialized
Content Type	Text
Resource Type	Chapter

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