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Numerical Methods and Optimization in Finance by Enrico Schumann, Dietmar Maringer, Manfred Gilli

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Chapter Thirteen

Portfolio Optimization

Publisher Summary

The aim of portfolio selection is to determine combinations of assets like bonds or stocks that are optimal with respect to performance measures based, for instance, on capital gains, volatility, or drawdown. A portfolio selection model, in other words, is a quantitative decision rule that tells us how to invest. The workhorse model for portfolio selection is mean–variance optimization. To a considerable extent, this specification is owed to computational restrictions. Markowitz pondered using downside semivariance as a measure for risk, but eventually rejected it mainly because it was much more difficult to compute optimal portfolios.

Optimization heuristics; Portfolio optimization; Threshold ...

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