Construction of a portfolio with shorter downside tail and longer upside tail

Authors:
Hiroshi Konno;Katsuhiro Tanaka;Rei Yamamoto
Affiliations:
Department of Industrial and Systems Engineering, Chuo University, Tokyo, Japan 112-8551;Department of Industrial and Systems Engineering, Chuo University, Tokyo, Japan 112-8551;Department of Industrial and Systems Engineering, Chuo University, Tokyo, Japan 112-8551 and Mitsubishi UFJ Trust Investment Technology Institute Co., Ltd., Tokyo, Japan 107-0052
Venue:
Computational Optimization and Applications
Year:
2011

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Mean-absolute deviation portfolio optimization model and its applications to Tokyo stock market

Management Science

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Abstract

The purpose of this paper is to propose an algorithm for solving Rachev ratio optimization problem which is intended to construct a portfolio with shorter downside tail and longer upside tail. Moreover, we propose modified Rachev ratio to remove the theoretical flaw of Rachev ratio. Also, we will compare several portfolio models using the market data in Tokyo Stock Exchange. We believe that this paper is of interest to researchers and practitioners in the field of portfolio optimization.