Robust model for optimal portfolio selection

Subject Areas : Journal of Investment Knowledge

Saeed Fallahpour ¹ , Farid Tondnevis ²

1 - assistant professor, faculty of management, university of Tehran
2 - MSc student, Financial engineering, faculty of management, university of Tehran

Received: 2013-09-17 Accepted : 2014-03-21 Published : 2014-03-21

Keywords: portfolio optimization, robust optimization, Markowitz Model, Sharpe ratio,

Abstract :

In this paper, we developed robust optimization approach that departs from the randomness assumption used in other methods of optimization under uncertainty and describe uncertainty in parameters through uncertainty sets; for portfolio selection problem. The model can control the conservativeness of investor for portfolio selection by a defined parameter. We used 50 active company of Tehran exchange stock in 3 first months of 1392 to study the performance of model. The results of paired comparisons in out of sample experiments shows that Markowitz portfolio which has same expected return by robust portfolio, has lower Sharpe ratio.