Applying Markowitz's Critical Line Algorithm

University of Bern Economics Working Paper No. 07-01

26 Pages Posted: 5 Apr 2006

See all articles by Andras F. Niedermayer

Andras F. Niedermayer

University of Mannheim - Department of Economics

Daniel Niedermayer

University of Basel

Date Written: January 2007

Abstract

We provide a Matlab quadratic optimization tool based onMarkowitz's critical line algorithm that significantly outperforms standard software packages and a recently developed operations research algorithm. As an illustration: For a 2000 asset universe our method needs less than a second to compute the whole frontier whereas the quickest competitor needs several hours. This paper can be considered as a didactic alternative to the critical line algorithm such as presented by Markowitz and treats all steps required by the algorithm explicitly. Finally, we present a benchmark of different optimization algorithms' performance.

Keywords: finance, portfolio selection, efficient frontier, critical line algorithm, quadratic optimization, numerical methods

JEL Classification: C15, C61, C63, G11

Suggested Citation

Niedermayer, Andras Ferenc and Niedermayer, Daniel, Applying Markowitz's Critical Line Algorithm (January 2007). University of Bern Economics Working Paper No. 07-01. Available at SSRN: https://ssrn.com/abstract=894842 or http://dx.doi.org/10.2139/ssrn.894842

Andras Ferenc Niedermayer (Contact Author)

University of Mannheim - Department of Economics ( email )

Mannheim 68131
Germany

HOME PAGE: http://andras.niedermayer.ch

Daniel Niedermayer

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

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