Portfolio Selection with Skewness: A Comparison and a Generalized Two Fund Separation Result

Walter Briec (), Kristiaan Kerstens and Ignace Van de Woestyne ()
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Walter Briec: Universit´e de Perpignan, Perpignan, France
Ignace Van de Woestyne: Hogeschool-Universiteit Brussel (HUB), Belgium

No 2011/09, Working Papers from Hogeschool-Universiteit Brussel, Faculteit Economie en Management

Abstract: The main aim of this contribution is to compare existing and newly developed techniques for geometrically representing mean-variance-skewness portfolio frontiers based on the rather widely adapted methodology of polynomial goal programming (PGP) on the one hand and the more recent approach based on the shortage function on the other hand. Moreover, we explain the working of these different methodologies in detail and provide graphical illustrations. Inspired by these illustrations, we prove a generalization of the well-known two fund separation theorem from traditional mean-variance portfolio theory.

Keywords: shortage function; PGP; efficient frontier; mean-variance; mean-skewness; mean-varianceskewness (search for similar items in EconPapers)
Pages: 34 page
Date: 2011-09
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