Further Reduction of the Konno-Yamazaki Mean-Absolute Deviation Portfolio Optimization Model

3 Pages Posted: 30 Oct 2014

See all articles by Mike Fox

Mike Fox

Polymathian Industrial Mathematics

Date Written: October 11, 2014

Abstract

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

Fox, Mike, Further Reduction of the Konno-Yamazaki Mean-Absolute Deviation Portfolio Optimization Model (October 11, 2014). Available at SSRN: https://ssrn.com/abstract=2508777 or http://dx.doi.org/10.2139/ssrn.2508777

Mike Fox (Contact Author)

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