Replica approach to mean-variance portfolio optimization

Istvan Varga-Haszonits, Fabio Caccioli and Imre Kondor

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We consider the problem of mean-variance portfolio optimization for a generic covariance matrix subject to the budget constraint and the constraint for the expected return, with the application of the replica method borrowed from the statistical physics of disordered systems. We find that the replica symmetry of the solution does not need to be assumed, but emerges as the unique solution of the optimization problem. We also check the stability of this solution and find that the eigenvalues of the Hessian are positive for r = N/T

JEL-codes: C1 (search for similar items in EconPapers)
Date: 2016-12-22
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Citations: View citations in EconPapers (9)

Published in Journal of Statistical Mechanics: Theory and Experiment, 22, December, 2016, 2016(Dec.). ISSN: 1742-5468

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