TY - JOUR
T1 - A mean-variance-skewness model
T2 - Algorithm and applications
AU - Konno, Hiroshi
AU - Yamamoto, Rei
N1 - Funding Information:
This research was supported in part by the Grant-in-Aid for Scientific Research of the Ministry of Education, Science, Sports and Culture of Japan B(2) 15310122 and 15656025. Also, authors acknowledge the generous support of the Financial Engineering Research Center, Hitachi, Co. and Japan Credit Research, Co.
PY - 2005/6
Y1 - 2005/6
N2 - We will show that a mean-variance-skewness portfolio optimization model, a direct extension of the classical mean-variance model can be solved exactly and fast by using the state-of-the-art integer programming approach. This implies that we can now calculate a portfolio with maximal expected utility for any decreasing risk averse utility function. Also, we will show that this model can be used as a practical tool for constructing a portfolio when the asset returns follow skewed distribution. As an example, we apply this model to construct an index plus alpha portfolio.
AB - We will show that a mean-variance-skewness portfolio optimization model, a direct extension of the classical mean-variance model can be solved exactly and fast by using the state-of-the-art integer programming approach. This implies that we can now calculate a portfolio with maximal expected utility for any decreasing risk averse utility function. Also, we will show that this model can be used as a practical tool for constructing a portfolio when the asset returns follow skewed distribution. As an example, we apply this model to construct an index plus alpha portfolio.
KW - Efficient frontier
KW - Integer programming
KW - Mean-variance-skewness
KW - Nonconvex minimization
KW - Portfolio optimization
KW - Third order moment
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U2 - 10.1142/S0219024905003116
DO - 10.1142/S0219024905003116
M3 - Article
AN - SCOPUS:21244499382
SN - 0219-0249
VL - 8
SP - 409
EP - 423
JO - International Journal of Theoretical and Applied Finance
JF - International Journal of Theoretical and Applied Finance
IS - 4
ER -