Title: Analytically Deriving Efficient Surfaces in Portfolio Selection
Abstract: We consider the practical issue - how an investor incorporates multidimensional risks from factor models directly into portfolio selection, and formulate the issue by multiple objective portfolio selection. Then we analytically derive efficient surfaces in multiple objective portfolio selection and demonstrate the properties and financial implications, as an extension of Merton's analytically deriving efficient frontier. Merton's 2-mutual-fund theorem and parabolic structure of efficient frontier are extended into 3-mutual-fund theorem and paraboloidic structure, respectively. The efficient portfolios of traditional portfolio selection are still efficient in the new setting. Furthermore, market portfolio is efficient if all investors hold efficient portfolios. We also show the results hold for general k-objective portfolio selection model.
Publication Year: 2006
Publication Date: 2006-01-01
Language: en
Type: article
Indexed In: ['crossref']
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