A robust heuristic for the optimal selection of a portfolio of stocks

Schyns, Michael

doi:10.1504/IJOR.2010.035520

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A robust heuristic for the optimal selection of a portfolio of stocks

Schyns, Michael

2010 • In International Journal of Operational Research, 9 (3), p. 258-271

Peer Reviewed verified by ORBi

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https://hdl.handle.net/2268/14044

DOI
10.1504/IJOR.2010.035520

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Keywords :

combinatorial optimization; robustness; Markowitz; MCD

Abstract :

[en] This paper introduces a new optimization heuristic for the robustification of critical inputs under consideration in many problems. It is shown that it allows to improve significantly the quality and the stability of the results for two classical financial problems, i.e. the Markowitz' portfolio selection problem and the computation of the financial beta. Focus here is on the robust Minimum Covariance Determinant (MCD) estimator which can easily be substituted to the classical estimators of location and scatter. By definition, the computation of this estimator gives rise to a combinatorial optimization problem. We present a new heuristic, called 'RelaxMCD', which is based on a relaxation of the problem to the continuous space. The utility of this approach and the performance of our heuristic, with respect to other competitors, are illustrated through extensive simulations.

Research Center/Unit :

QuantOM

Disciplines :

Quantitative methods in economics & management

Author, co-author :

Schyns, Michael ; Université de Liège - ULiège > HEC - École de gestion de l'ULiège > Informatique de gestion

Language :

English

Title :

A robust heuristic for the optimal selection of a portfolio of stocks

Publication date :

2010

Journal title :

International Journal of Operational Research

ISSN :

1745-7645

eISSN :

1745-7653

Publisher :

InderScience

Volume :

Issue :

Pages :

258-271

Peer reviewed :

Peer Reviewed verified by ORBi

Additional URL :

http://www.inderscience.com/browse/index.php?journalCODE=ijor

Commentary :

The original publication is available at www.inderscience.com

Available on ORBi :

since 05 June 2009

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