Notes: A Reformulation of a Mean-Absolute Deviation Portfolio Optimization Model

Charles D. Feinstein and Mukund N. Thapa
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Charles D. Feinstein: Department of Decision and Information Sciences, Leavey School of Business, Santa Clara University, Santa Clara, California 95053
Mukund N. Thapa: Stanford Business Software, Inc., 2672 Bayshore Parkway, Suite 304, Mountain View, California 94043

Management Science, 1993, vol. 39, issue 12, 1552-1553

Abstract: The purpose of this note is to present a reformulation of the model presented by Konno and Yamazaki (1991). In their paper, it was claimed that (under the assumption that there is no upper limit on the investment in an asset) the number of nonzero assets in the optimal portfolio is at most 2T + 2, where T is the number of time periods in the data base used to approximate the parameters of the return distributions of the assets. The formulation we present, which is shown to be equivalent to that of Konno and Yamazaki, has a bound of T + 2 on the number of nonzero assets in the optimal portfolio.

Keywords: portfolio optimization; L1 risk function; linear programming; Markowitz model (search for similar items in EconPapers)
Date: 1993
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