An Analytical Derivation of the Efficient Surface in Portfolio Selection with Three Criteria
| Autor: | Ralph E. Steuer, Maximilian Wimmer, Yue Qi |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2017 |
| Předmět: |
Mathematical optimization
021103 operations research ddc:330 330 Wirtschaft 0211 other engineering and technologies General Decision Sciences Efficient frontier MUTUAL FUNDS OPTIMIZATION MANAGEMENT OBJECTIVES FRONTIER MODEL Multiple criteria optimization Tri-criterion portfolio selection Minimumvariance frontier e-Constraint method Efficient surface Paraboloids 02 engineering and technology Variance (accounting) Management Science and Operations Research Theory of computation 0202 electrical engineering electronic engineering information engineering Portfolio 020201 artificial intelligence & image processing Roy's safety-first criterion Portfolio optimization Selection (genetic algorithm) Modern portfolio theory Mathematics |
| Popis: | In standard mean-variance bi-criterion portfolio selection, the efficient set is a frontier. While it is not yet standard for there to be additional criteria in portfolio selection, there has been a growing amount of discussion in the literature on the topic. However, should there be even one additional criterion, the efficient frontier becomes an efficient surface. Striving to parallel Merton's seminal analytical derivation of the efficient frontier, in this paper we provide an analytical derivation of the efficient surface when an additional linear criterion (on top of expected return and variance) is included in the model addressed by Merton. Among the results of the paper there is, as a higher dimensional counterpart to the 2-mutual-fund theorem of traditional portfolio selection, a 3-mutual-fund theorem in tricriterion portfolio selection. 3D graphs are employed to stress the paraboloidic/ hyperboloidic structures present in tri-criterion portfolio selection. |
| Databáze: | OpenAIRE |
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