Bounds on mean absolute deviation portfolios under interval-valued expected future asset returns

Songkomkrit Chaiyakan () and Phantipa Thipwiwatpotjana ()
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Songkomkrit Chaiyakan: National Institute of Development Administration
Phantipa Thipwiwatpotjana: Chulalongkorn University

Computational Management Science, 2021, vol. 18, issue 2, No 4, 195-212

Abstract: Abstract This work concerns a suitable range of optimal portfolio compositions as well as their optimal returns in the mean absolute deviation portfolio selection model when a threshold return expected from the investment is given. Disagreement in measurements of expected future asset returns is resolved by the alternative representation of their intervals. The nonlinear behavior of the resultant parametric model with its nonconvex feasible region is discussed in detail. Constraints used in achieving exact bounds can be relaxed for faster computation and more accurate results, leading to relaxed bounds which can be improved by basis stability. This is particularly useful for a securities company to create more appealing advertisement on its financial products and also for an investor to screen out unfavorable assets from a variety of instruments to spend less time on and reduce expenses incurred in the process of fundamental and technical analysis. The relaxed bounds are compared with the bounds obtained by bilevel and nonlinear approaches.

Keywords: Interval linear programming; Investment analysis; Mean absolute deviation portfolio selection model; Nonlinear programming (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10287-021-00392-x

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