A Characterization of the SSD-Efficient Frontier of Portfolio Weights by Means of a Set of Mixed-Integer Linear Constraints

Management Science, Forthcoming

Posted: 22 Nov 2015

See all articles by Iñaki Rodríguez-Longarela

Iñaki Rodríguez-Longarela

Stockholm University - Stockholm Business School; UiT-The Arctic University of Norway - School of Business and Economics

Date Written: June 15, 2015

Abstract

In this paper the set of all second-order stochastic dominance (SSD) efficient portfolios is characterized by using a series of mixed-integer linear constrains. Our derivation employs a combination of the first-order conditions of the utility maximization problem together with a judicious use of binary variables. This result opens the door to the formulation of optimizations whose objective function is free to select a particular portfolio out of the entire SSD-efficient set.

Keywords: stochastic dominance, mixed-integer linear programming, portfolio theory

JEL Classification: C61, G10, G11

Suggested Citation

Rodríguez Longarela, Iñaki, A Characterization of the SSD-Efficient Frontier of Portfolio Weights by Means of a Set of Mixed-Integer Linear Constraints (June 15, 2015). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2693637

Iñaki Rodríguez Longarela (Contact Author)

Stockholm University - Stockholm Business School ( email )

Stockholm
Sweden

UiT-The Arctic University of Norway - School of Business and Economics ( email )

Tromsø, 9037
Norway

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