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On the Computation of the Efficient Frontier of the Portfolio Selection Problem

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  • Clara Calvo
  • Carlos Ivorra
  • Vicente Liern

Abstract

An easy-to-use procedure is presented for improving the -constraint method for computing the efficient frontier of the portfolio selection problem endowed with additional cardinality and semicontinuous variable constraints. The proposed method provides not only a numerical plotting of the frontier but also an analytical description of it, including the explicit equations of the arcs of parabola it comprises and the change points between them. This information is useful for performing a sensitivity analysis as well as for providing additional criteria to the investor in order to select an efficient portfolio. Computational results are provided to test the efficiency of the algorithm and to illustrate its applications. The procedure has been implemented in Mathematica.

Suggested Citation

  • Clara Calvo & Carlos Ivorra & Vicente Liern, 2012. "On the Computation of the Efficient Frontier of the Portfolio Selection Problem," Journal of Applied Mathematics, Hindawi, vol. 2012, pages 1-25, October.
    • Handle: RePEc:hin:jnljam:105616
    DOI: 10.1155/2012/105616
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    Cited by:

    1. Alessia Naccarato & Andrea Pierini & Giovanna Ferraro, 2021. "Markowitz portfolio optimization through pairs trading cointegrated strategy in long-term investment," Annals of Operations Research, Springer, vol. 299(1), pages 81-99, April.
    2. Milena Bonacic & Héctor López-Ospina & Cristián Bravo & Juan Pérez, 2024. "A Fuzzy Entropy Approach for Portfolio Selection," Mathematics, MDPI, vol. 12(13), pages 1-20, June.
    3. Juszczuk, Przemysław & Kaliszewski, Ignacy & Miroforidis, Janusz & Podkopaev, Dmitry, 2022. "Mean--variance portfolio selection problem: Asset reduction via nondominated sorting," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 263-272.
    4. Wulan Anggraeni & Sudradjat Supian & Sukono & Nurfadhlina Abdul Halim, 2023. "Catastrophe Bond Diversification Strategy Using Probabilistic–Possibilistic Bijective Transformation and Credibility Measures in Fuzzy Environment," Mathematics, MDPI, vol. 11(16), pages 1-30, August.
    5. Ravi Kashyap, 2024. "The Blockchain Risk Parity Line: Moving From The Efficient Frontier To The Final Frontier Of Investments," Papers 2407.09536, arXiv.org.

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