Portfolios from Sorts

22 Pages Posted: 12 May 2005

See all articles by Neil A Chriss

Neil A Chriss

Hutchin Hill Capital

Robert Almgren

University of Toronto - Department of Mathematics

Date Written: April 27, 2005


Modern portfolio theory produces an optimal portfolio from estimates of expected returns and a covariance matrix. We present a method for portfolio optimization based on replacing expected returns with ordering information, that is, with information about the order of the expected returns. We give a simple and economically rational definition of optimal portfolios that extends Markowitz' meanvariance optimality condition in a natural way; in particular, our construction allows full use of covariance information. We also provide efficient numerical algorithms. The formulation we develop is very general and is easily extended to a variety of cases, for example, where assets are divided into multiple sectors or there are multiple sorting criteria available.

Keywords: optimal portfolios, portfolio choice, portfolio optimization, optimization theory, convex optimization, asset pricing, capm

JEL Classification: C61, G11, G12

Suggested Citation

Chriss, Neil A. and Almgren, Robert, Portfolios from Sorts (April 27, 2005). Available at SSRN: https://ssrn.com/abstract=720041 or http://dx.doi.org/10.2139/ssrn.720041

Neil A. Chriss (Contact Author)

Hutchin Hill Capital ( email )

142 West 57th Street
New York, NY 10019
United States

Robert Almgren

University of Toronto - Department of Mathematics ( email )

Toronto, Ontario M5S 3G3

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