Efficient Cardinality/Mean-Variance Portfolios

Conference object, Article English OPEN
Brito , R. , ; Vicente , Luís , (2013)
  • Publisher: Springer Berlin Heidelberg
  • Related identifiers: doi: 10.1007/978-3-662-45504-3_6
  • Subject: Multiobjective optimization | Efficient frontier | [ INFO ] Computer Science [cs] | Portfolio selection | Sparse portfolios | Cardinality | Derivative-free optimization

International audience; We propose a novel approach to handle cardinality in portfolio selection, by means of a biobjective cardinality/mean-variance problem, allowing the investor to analyze the efficient tradeoff between return-risk and number of active positions. Recent progress in multiobjective optimization without derivatives allow us to robustly compute (in-sample) the whole cardinality/mean-variance efficient frontier, for a variety of data sets and mean-variance models. Our results show that a significant number of efficient cardinality/mean-variance portfolios can overcome (out-of-sample) the naive strategy, while keeping transaction costs relatively low.
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