Unique closed-form solutions of portfolio selection subject to mean-skewness-normalization constraints
| Autor: | Qiong Liu, Fengxin Xue, Xin Lu |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2019 |
| Předmět: |
Statistics and Probability
Mathematical optimization Control and Optimization Market portfolio Strategy and Management 0211 other engineering and technologies 02 engineering and technology Management Science and Operations Research Mean-variance-skewness optimization model Unique closed-form solution Portfolio selection Capital allocation line Rate of return on a portfolio 03 medical and health sciences 0302 clinical medicine ddc:330 Tangency portfolio G11 Mathematics Ratio of return versus risk 021103 operations research Efficient frontier lcsh:Mathematics Sharpe ratio Skew-normal distribution lcsh:QA1-939 Hyperbola C61 Skewness 030221 ophthalmology & optometry Portfolio |
| Zdroj: | Operations Research Perspectives, Vol 6, Iss, Pp-(2019) |
| Popis: | This paper originally proposes two unique closed-form solutions, respectively to risky assets only and a risk-free asset existing situations, of the mean-variance-skewness (MVS) optimization model subject to mean-sknewness-normalization constraints for portfolio selection. The efficient frontier and capital allocation surface (CAS) respectively derived from the two solutions are two hyperboloids, and tangent to each other at one hyperbola referred to as the market portfolio curve. Moreover, this curve intersects the mean-skewness plane of the portfolio return wtih zero-variance (zero-risk) at a line. Calculating the distance between a point on the coincident curve with the vertex of the CAS, we present a novel ratio to measure the performance of the risk-adjusted returns of market portfolio. The ratio is similar to the Sharpe ratio, moreover, under the more realistic assumption that portfolio returns follow a skew-normal distribution, the novel ratio can quantify the degree (or absence) of market portfolio exuberance. JEL classification: Primary G11, Secondary C61, Portfolio selection, Mean-variance-skewness optimization model, Skew-normal distribution, Unique closed-form solution, Efficient frontier, Tangency portfolio, Ratio of return versus risk |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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