Efficient portfolios computed with moment-based bounds

David P. Morton, Steftcho Dokov and Ivilina Popova

Finance Research Letters, 2023, vol. 51, issue C

Abstract: Using Bernstein polynomials, we derive moment-based bounding approximations on the expected value of a utility function. We show that optimizing these bounds yields a solution, which is mean–variance (MV) or MV-skewness–kurtosis (MVSK) efficient depending on how many moments are included in the approximation. Practitioners actively managing portfolios may find the approximations useful in their pursuit of designing new trading strategies via asset allocation models based on different utility functions.

Keywords: Mean–variance efficient frontier; Portfolio higher moments; Utility functions (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006018

DOI: 10.1016/j.frl.2022.103424

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