Gulpinar, Nalan, An, Le Thi Hoai and Moeini, Mahdi (2010) Robust investment strategies with discrete asset choice constraints using DC programming. In: International Conference on Nonconvex Programming - Local and Global Approaches, Natl Inst Appl Sci, Rouen, France, December 17-21, 2007. Published in: Optimization, Vol.59 (No.1). pp. 45-62.

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Abstract

In this article, we are concerned with robust investment strategies for the portfolio management problem. We extend the classical Markowitz framework with discrete asset choice constraints to worst-case portfolio selection with rival risk and return scenario specifications. Robustness is ensured by considering the optimal strategy in view of multiple rival scenarios and evaluating the portfolio simultaneously with the worst-case scenario. Discrete constraints, such as buy-in thresholds and cardinality, represent the investor's choice on the assets. Portfolio allocation with discrete asset choice constraints is a non-convex and NP-hard problem. A local deterministic optimization approach based on difference of convex (DC) functions programming is introduced and a DC algorithm (DCA) is developed to solve min-max mean-variance portfolio optimization problem. The computational results using historical data show that the DCA is more efficient than the standard methods and often provides a global solution.

Item Type:	Conference Item (Paper)
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management Q Science > QA Mathematics
Divisions:	Faculty of Social Sciences > Warwick Business School > Operational Research & Management Sciences Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Optimization
Publisher:	Taylor & Francis Ltd.
ISSN:	0233-1934
Date:	2010
Volume:	Vol.59
Number:	No.1
Number of Pages:	18
Page Range:	pp. 45-62
Identification Number:	10.1080/02331930903500274
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Conference Paper Type:	Paper
Title of Event:	International Conference on Nonconvex Programming - Local and Global Approaches
Type of Event:	Conference
Location of Event:	Natl Inst Appl Sci, Rouen, France
Date(s) of Event:	December 17-21, 2007
URI:	http://wrap.warwick.ac.uk/id/eprint/6409

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