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Michalowski, W. & Ogryczak, W. (1999). A recursive procedure for selecting optimal portfolio according to the MAD model. Control and Cybernetics 28 (4) 725-738.
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A recursive procedure for selecting optimal portfolio according to the MAD model.pdf - Published Version Available under License Creative Commons Attribution. Download (2MB) | Preview |
Abstract
The mathematical model of portfolio optimization is usually represented as a bicriteria optimization problem where a reasonable trade-off between expected rate of return and risk is sought. In a classical Markowitz model the risk is measured by a variance, thus resulting in a quadratic programming model. As an alternative, the MAD model was proposed where risk is measured by (mean) absolute deviation instead of a variance. The MAD model is computationally attractive, since it is transformed into an easy to solve linear programming program. In this paper we present a recursive procedure which allows to identify optimal portfolio of the MAD model depending on investor's downside risk aversion.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | Downside risk aversion; Linear programming; Portfolio optimization |
| Depositing User: | Luke Kirwan |
| Date Deposited: | 04 Aug 2016 08:58 |
| Last Modified: | 27 Aug 2021 17:41 |
| URI: | https://pure.iiasa.ac.at/13569 |
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