A Characterization of the SSD-Efficient Frontier of Portfolio Weights by Means of a Set of Mixed-Integer Linear Constraints

• 成果类型: Article
• 署名作者: Longarela, Inaki R.
• 署名单位: Stockholm University; UiT The Arctic University of Tromso
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2015.2282
• 发表日期: 2016
• 页码: 3549-3554
• 关键词: Stochastic dominance; mixed-integer linear programming; portfolio theory

摘要

In this paper, the set of all second-order stochastic dominance (SSD)-efficient portfolios is characterized by using a series of mixed-integer linear constraints. Our derivation employs a combination of the first-order conditions of the utility maximization problem together with a judicious use of binary variables. This result opens the door to the formulation of optimizations whose objective function is free to select a particular portfolio out of the entire SSD-efficient set.