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

• Autores: Iñaki R. Longarela
• Localización: Management science: journal of the Institute for operations research and the management sciences, ISSN 0025-1909, Vol. 62, Nº. 12, 2016, págs. 3549-3554
• Idioma: inglés
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• Resumen

  • 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. This paper was accepted by Jerome Detemple, finance.