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Robust Asset Allocation

Robust Asset Allocation This article addresses the problem of finding an optimal allocation of funds among different asset classes in a robust manner when the estimates of the structure of returns are unreliable. Instead of point estimates used in classical mean-variance optimization, moments of returns are described using uncertainty sets that contain all, or most, of their possible realizations. The approach presented here takes a conservative viewpoint and identifies asset mixes that have the best worst-case behavior. Techniques for generating uncertainty sets from historical data are discussed and numerical results that illustrate the stability of robust optimal asset mixes are reported. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Annals of Operations Research Springer Journals

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References (33)

Publisher
Springer Journals
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Business and Management; Operation Research/Decision Theory; Combinatorics; Theory of Computation
ISSN
0254-5330
eISSN
1572-9338
DOI
10.1023/B:ANOR.0000045281.41041.ed
Publisher site
See Article on Publisher Site

Abstract

This article addresses the problem of finding an optimal allocation of funds among different asset classes in a robust manner when the estimates of the structure of returns are unreliable. Instead of point estimates used in classical mean-variance optimization, moments of returns are described using uncertainty sets that contain all, or most, of their possible realizations. The approach presented here takes a conservative viewpoint and identifies asset mixes that have the best worst-case behavior. Techniques for generating uncertainty sets from historical data are discussed and numerical results that illustrate the stability of robust optimal asset mixes are reported.

Journal

Annals of Operations ResearchSpringer Journals

Published: Nov 2, 2004

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