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Portfolio selection via replicator dynamics and projections of indefinite estimated covariances

Bomze, Immanuel (2000) Portfolio selection via replicator dynamics and projections of indefinite estimated covariances. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 75. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract

Replicator dynamics are an increasingly popular device for obtaining (local) solutions of considerably high quality to so-called standard quadratic optimization problems, which consist of finding maxima of (possibly indefinite) quadratic forms over the standard simplex. In the simplest version of portfolio selection, the quadratic form is theoretically negative-semidefinite, so that any local solution automatically is a global one. However, if it comes to more realistic set-ups, then (i) no market portfolio is available, so that one ends up with an indefinite theoretical problem, (ii) estimated covariance matrices modelling risk may be indefinite also. This paper deals with both problems in a different way: (i) will be solved via escape steps to avoid low-quality local solutions while (ii) is dealt with by several projection strategies which convert the indefinite estimated covariance matrix into a positive-semidefinite one. (author's abstract)

Item Type: Paper
Keywords: Quadratische Optimierung / Portfolio Selection
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft
Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes
Departments > Marketing > Service Marketing und Tourismus
Depositing User: Repository Administrator
Date Deposited: 31 Jan 2002 10:46
Last Modified: 25 Jan 2011 12:15
URI: http://epub.wu.ac.at/id/eprint/632

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