Sparse tangent portfolio selection via semi-definite relaxation

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The high-cardinality of mean-variance portfolios is a concern in practice because it increases transaction costs and management fees. Therefore, we propose a method to resolve the cardinality problem by applying the semi-definite relaxation method to a cardinality constrained optimal tangent portfolio selection model. We find that the relaxed model becomes a semi-definite programming problem that is efficiently solved with existing optimization solvers. Numerical analyses with historical stock returns confirm that the proposed relaxed model effectively constructs sparse tangent portfolios. (C) 2016 Elsevier B.V. All rights reserved
Publisher
ELSEVIER SCIENCE BV
Issue Date
2016-07
Language
English
Article Type
Article
Citation

OPERATIONS RESEARCH LETTERS, v.44, no.4, pp.540 - 543

ISSN
0167-6377
DOI
10.1016/j.orl.2016.05.012
URI
http://hdl.handle.net/10203/212919
Appears in Collection
IE-Journal Papers(저널논문)
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