Dynamic portfolio optimization: Time decomposition using the Maximum Principle with a scenario approach
| Autor: | Elio Canestrelli, Diana Barro |
|---|---|
| Rok vydání: | 2005 |
| Předmět: |
Mathematical optimization
Information Systems and Management Optimization problem General Computer Science Stochastic programming Scenarios Dynamic portfolio Progressive Hedging Algorithm Maximum Principle Management Science and Operations Research Industrial and Manufacturing Engineering Maximum principle Modeling and Simulation Decomposition (computer science) Probability distribution Portfolio Portfolio optimization Project portfolio management Mathematics |
| Zdroj: | European Journal of Operational Research. 163:217-229 |
| ISSN: | 0377-2217 |
| DOI: | 10.1016/j.ejor.2004.01.012 |
| Popis: | We study a dynamic portfolio management problem over a finite horizon with transaction costs and a risk averse objective function. We assume that the uncertainty faced by the investor can be modelled or approximated using discrete probability distributions via a scenario approach. To solve the resulting optimization problem we use stochastic programming techniques; in particular a scenario decomposition approach. To take advantage of the structure of the portfolio problem we propose a further decomposition obtained by means of a discrete version of the Maximum Principle. The result is a double decomposition of the original problem: The first, given by the scenario approach, focuses on the stochastic aspect of the problem while the second, using the discrete Maximum Principle, concerns the dynamics over time. Applying the double decomposition to our portfolio problem yields a simpler and more direct solution approach which we illustrate with examples. |
| Databáze: | OpenAIRE |
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