Title: Robust portfolio selection using linear-matrix inequalities
Abstract: In this paper, we consider the problem of robust optimal portfolio selection for tracking error when the expected returns of the risky and risk-free assets as well as the covariance matrix of the risky assets are not exactly known. We assume that these parameters belong to a convex polytope defined by some known elements, which form the vertices of this polytope. We consider two problems: the first one is to find a portfolio of minimum worst case volatility of the tracking error with guaranteed fixed minimum target expected performance. The second one is to find a portfolio of maximum worst case target expected performance with guaranteed fixed maximum volatility of the tracking error. We show that these two problems are equivalent to solving linear-matrix inequalities (LMI) optimization problems, so that the powerful numerical packages nowadays available for this class of problems can be used. A numerical example in the São Paulo stock exchange (BOVESPA) is presented.
Publication Year: 2002
Publication Date: 2002-06-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 97
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