Use of stochastic and mathematical programming in portfolio theory and practice

William Ziemba ()

Annals of Operations Research, 2009, vol. 166, issue 1, 5-22

Abstract: Standard finance portfolio theory draws graphs and writes equations usually with no constraints and frequently in the univariate case. However, in reality, there are multivariate random variables and multivariate asset weights to determine with constraints. Also there are the effects of transaction costs on asset prices in the theory and calculation of optimal portfolios in the static and dynamic cases. There we use various stochastic programming, linear complementary, quadratic programming and nonlinear programming problems. This paper begins with the simplest problems and builds the theory to the more complex cases and then applies it to real financial asset allocation problems, hedge funds and professional racetrack betting. Copyright Springer Science+Business Media, LLC 2009

Keywords: Portfolio theory; Mean-variance analysis; Risk aversion; Utility function; Stochastic programming; Capital growth theory (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/s10479-008-0441-z

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