Robust profit opportunities in risky financial portfolios

Authors:
Mustafa Ç. PıNar;Reha H. TüTüNcü
Affiliations:
Department of Industrial Engineering, Bilkent University, 06800 Ankara, Turkey;Department of Mathematical Sciences, Carnegie Mellon University, Pittsburgh, PA 15213, USA
Venue:
Operations Research Letters
Year:
2005

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Abstract

For risky financial securities with given expected return vector and covariance matrix, we propose the concept of a robust profit opportunity in single- and multiple-period settings. We show that the problem of finding the ''most robust'' profit opportunity can be solved as a convex quadratic programming problem, and investigate its relation to the Sharpe ratio.