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Robust Profit Opportunities in Risky Financial Portfolios

Mustafa C. Pinar (mustafap***at***Bilkent.EDU.TR)
Reha H. Tutuncu (reha***at***cmu.edu)

Abstract: For risky financial securities with given expected return vector and covariance matrix, we propose the concept of a robust profit opportunity in single and multiple period settings. We show that the problem of finding the ``most robust'' profit opportunity can be solved as a convex quadratic programming problem, and investigate its relation to the Sharpe ratio.

Keywords: arbitrage, Sharpe ratio, robust optimization

Category 1: Applications -- OR and Management Sciences (Finance and Economics )

Category 2: Robust Optimization

Citation: Technical Report, Department of Mathematical Sciences, Carnegie Mellon University, Pittsburgh, PA 15213, USA, August 2004.

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Entry Submitted: 08/17/2004
Entry Accepted: 08/17/2004
Entry Last Modified: 08/17/2004

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