Selecting a discrete portfolio

Wojciech Olszewski; Rakesh Vohra

doi:10.1016/j.jmateco.2014.10.001

Selecting a discrete portfolio

Wojciech Olszewski^*, Rakesh Vohra

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

We study the problem of selecting an optimal portfolio out of a finite set of available assets. Assets are characterized by their expected returns and the covariance matrix, and investors are assumed to have a mean-variance utility, that is, their utility function is linear in the mean and variance of the portfolio they hold.When assets are negatively correlated, or even when a slightly more general condition is satisfied, we provide an algorithm for selecting an optimal portfolio. We illustrate the usefulness of this algorithm by some comparative statics result. When assets can be positively correlated, we deliver a negative result regarding the existence of useful algorithms for selecting an optimal portfolio.

Original language	English (US)
Pages (from-to)	69-73
Number of pages	5
Journal	Journal of Mathematical Economics
Volume	55
Issue number	1
DOIs	https://doi.org/10.1016/j.jmateco.2014.10.001
State	Published - 2014

Keywords

Optimal discrete portfolios
Selection algorithms

ASJC Scopus subject areas

Economics and Econometrics
Applied Mathematics

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AB - We study the problem of selecting an optimal portfolio out of a finite set of available assets. Assets are characterized by their expected returns and the covariance matrix, and investors are assumed to have a mean-variance utility, that is, their utility function is linear in the mean and variance of the portfolio they hold.When assets are negatively correlated, or even when a slightly more general condition is satisfied, we provide an algorithm for selecting an optimal portfolio. We illustrate the usefulness of this algorithm by some comparative statics result. When assets can be positively correlated, we deliver a negative result regarding the existence of useful algorithms for selecting an optimal portfolio.

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KW - Selection algorithms

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Selecting a discrete portfolio

Abstract

Keywords

ASJC Scopus subject areas

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