Efficient Cardinality/Mean-Variance Portfolios
Conference object, Article
Brito , R. ,
Vicente , Luís ,
- Publisher: Springer Berlin Heidelberg
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.