Minimization of a Function of a Quadratic Functional with Application to Optimal Portfolio Selection

Zinoviy Landsman, Udi Makov

Research output: Contribution to journalArticlepeer-review

Abstract

We present an explicit closed-form solution to the problem of minimizing the combination of linear functional and a function of quadratic functional, subject to a system of affine constraints. This is of interest for solving important problems in financial economics related to optimal portfolio selection. The new results essentially generalize previous results of the authors concerning optimal portfolio selection with translation invariant and positive homogeneous risk measures. The classical mean-variance model and the recently introduced and investigated tail mean-variance model are special cases of the problem discussed here.

Original languageEnglish
Pages (from-to)308-322
Number of pages15
JournalJournal of Optimization Theory and Applications
Volume170
Issue number1
DOIs
StatePublished - 1 Jul 2016

Bibliographical note

Publisher Copyright:
© 2015, Springer Science+Business Media New York.

Keywords

  • Function of quadratic functional
  • Linear constraints
  • Minimization
  • Portfolio selection
  • Tail variance

ASJC Scopus subject areas

  • Control and Optimization
  • Management Science and Operations Research
  • Applied Mathematics

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