Portfolio optimization through Kriging methods

Marcelo Rosário da Barrosa, Arthur Valle Salles and Celma de Oliveira Ribeiro

Applied Economics, 2016, vol. 48, issue 50, 4894-4905

Abstract: This article presents a new methodology for optimizing financial asset portfolios. The proposed methodology, based on the Kriging method, allows for approximating the risk surface – and thus the optimal solution to the problem – in a generalized fashion, relaxing every restrictive hypothesis inherent to the available methods and with the ability to estimate the error in the risk surface approximation. Illustratively, the proposed methodology is applied to the portfolio problem with the Variance, VaR and CVaR as objective functions. The results are compared to those obtained using the Khun–Tucker technique, for the former, and the Rockafellar method, for the latter.

Date: 2016
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DOI: 10.1080/00036846.2016.1167827

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