Further Reduction of the Konno-Yamazaki Mean-Absolute Deviation Portfolio Optimization Model
3 Pages Posted: 30 Oct 2014
Date Written: October 11, 2014
The purpose of this note is to present a further reduction of the model presented by Konno and Yamazaki (1991). In their paper the number of nonzero assets in the optimal solution is bounded by the number of model rows, 2T + 2, where T is the number of time periods (assuming no upper limit on the investment in an asset). Further analysis based on the work of Feinstein and Thapa (1993) shows that one set of T constraints is redundant, leading to an upper bound on nonzero assets of T + 2.
Keywords: Portfolio Optimisation; L1 Risk Model; Linear Programming
JEL Classification: C61, G11
Suggested Citation: Suggested Citation