Multiobjective portfolio optimization: bridging mathematical theory with asset management practice

Panos Xidonas (), Christis Hassapis, George Mavrotas, Christos Staikouras and Constantin Zopounidis
Additional contact information
Panos Xidonas: ESSCA Grande École
Christis Hassapis: University of Cyprus
Christos Staikouras: Athens University of Economics and Business
Constantin Zopounidis: Audencia Business School

Annals of Operations Research, 2018, vol. 267, issue 1, No 28, 585-606

Abstract: Abstract We attempt to establish an integrated portfolio optimization business framework, in order to bridge the underlying gap between the complex mathematical theory of multiobjective mathematical programming and asset management practice. Our aim is to assist practitioners and portfolio managers in formulating successful investment strategies, by providing them with an effective decision support tool. In particular, we propose a multiobjective portfolio model, able to support the simultaneous optimization of multiple investment objectives. We also manage to integrate a set of sophisticated real-world non-convex investment policy limitations, such as the cardinality constraints, the buy-in thresholds, the transaction costs, along with particular normative rules. The underlying investment management rationale of the proposed managerial protocol is displayed through an illustrative business flowchart, while we also provide an analytical step-by-step portfolio management business routine. The validity of the model is verified through an extended empirical testing application on the Eurostoxx 50. According to the results, a sufficient number of efficient or Pareto optimal portfolios produced by the model, appear to possess superior out-of-sample returns with respect to the underlying benchmark.

Keywords: Portfolio optimization; Multiobjective mathematical programming; Asset management; Eurostoxx 50 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Working Paper: Multiobjective portfolio optimization: bridging mathematical theory with asset management practice (2016)
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DOI: 10.1007/s10479-016-2346-6

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