Portfolio selection with a minimax measure in safety constraint |
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| Authors: | Amita Sharma Aparna Mehra |
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| Affiliation: | 1. Department of Mathematics, Indian Institute of Technology Delhi, New Delhi, India.amitaashrma.iitd@gmail.commaz118262@maths.iitd.ac.in;4. Department of Mathematics, Indian Institute of Technology Delhi, New Delhi, India. |
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| Abstract: | In this paper, we attempt to design a portfolio optimization model for investors who desire to minimize the variation around the mean return and at the same time wish to achieve better return than the worst possible return realization at every time point in a single period portfolio investment. The portfolio is to be selected from the risky assets in the equity market. Since the minimax portfolio optimization model provides us with the portfolio that maximizes (minimizes) the worst return (worst loss) realization in the investment horizon period, in order to safeguard the interest of investors, the optimal value of the minimax optimization model is used to design a constraint in the mean-absolute semideviation model. This constraint can be viewed as a safety strategy adopted by an investor. Thus, our proposed bi-objective linear programming model involves mean return as a reward and mean-absolute semideviation as a risk in the objective function and minimax as a safety constraint, which enables a trade off between return and risk with a fixed safety value. The efficient frontier of the model is generated using the augmented  | |
| Keywords: | portfolio optimization mean-absolute semideviation model minimax model ratio optimization problem  augmented  v062 i11/02331934 2013 854361/20131204/images/medium/gopt_a_854361_ilm0002 gif" alt=" />-constraint method in-sample and out-of-sample analysis S& P CNX Nifty index |
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