Robust Optimization Approaches to Single Period Portfolio Allocation Problem

Nalân Gülpınar () and Zhezhi Hu ()
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Nalân Gülpınar: The University of Warwick
Zhezhi Hu: The University of Warwick

Chapter Chapter 12 in Robustness Analysis in Decision Aiding, Optimization, and Analytics, 2016, pp 265-283 from Springer

Abstract: Abstract Portfolio management is one of the fundamental problems in financial decision making. In a typical portfolio management problem, an investor is concerned with an optimal allocation of the capital among a number of available financial assets to maximize the return on the investment while minimizing the risk. This problem was formulated in the mean-variance portfolio management framework proposed by Markowitz in 1952. Since then, it has been widely studied by researchers and the practitioners. However, the solution is sensitive to model parameters due to data uncertainty. In this chapter, we review robust approaches to deal with data uncertainty for a single-period portfolio allocation problem. We first introduce the main ideas of robust optimization using symmetric and asymmetric uncertainty sets where the uncertain asset returns belong to. We then focus on data driven and distributionally robust optimization approaches.

Keywords: Risk Measure; Stochastic Programming; Robust Optimization; Asset Return; Portfolio Management (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-3-319-33121-8_12

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