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Bruno de Finetti and the case of the critical line's last segment

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  • Barone, Luca

Abstract

The anticipatory views of Bruno de Finetti on portfolio theory, set out by the author in a 1940 article, have recently been discovered by Mark Rubinstein and reviewed by Harry Markowitz. This paper analyzes the crucial parts of de Finetti's paper and discusses the controversial issue of the critical line's last segment, i.e. the segment that leads to the minimum-variance efficient portfolio. Markowitz [Markowitz, Harry M., 2006. De Finetti scoops Markowitz. In: A Literature postscript. J. Invest. Manag. 4 (3), 3-18 (special issue)] derives the criterion for the last segment to lie on one of the boundaries of the set of legitimate portfolios in two (and n) dimensions and Pressacco [Pressacco, Flavio, 2005. De Finetti, Markowitz e la congettura dell'ultimo segmento. Rendiconti per gli Studi Economici Quantitativi, Universita Ci Foscari di Venezia] shows a necessary and sufficient condition for the last segment to lie inside the legitimate set in three dimensions when the correlations are uniformly positive. This paper revises the terms of the problem and completes the analysis.

Suggested Citation

  • Barone, Luca, 2008. "Bruno de Finetti and the case of the critical line's last segment," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 359-377, February.
    • Handle: RePEc:eee:insuma:v:42:y:2008:i:1:p:359-377
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    References listed on IDEAS

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    1. Harry Markowitz, 1956. "The optimization of a quadratic function subject to linear constraints," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 3(1‐2), pages 111-133, March.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
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    Cited by:

    1. David Johnstone & Dennis Lindley, 2013. "Mean-Variance and Expected Utility: The Borch Paradox," Papers 1306.2728, arXiv.org.
    2. Emmanuel Jurczenko & Bertrand Maillet & Paul Merlin, 2008. "Efficient Frontier for Robust Higher-order Moment Portfolio Selection," Post-Print halshs-00336475, HAL.

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