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On the Safety First portfolio selection

Vladimir Norkin (norkin***at***i.com.ua)
Serhiy Boyko (serhiy.boyko***at***gmail.com)

Abstract: A.D.Roy's (1952) safety first (SF) approach to a financial portfolio selection is improved. Safety first means minimization of probability of poor returns. Improvement concerns a better estimation of the poor return probabilities by means of shortfall risk functions. Optimal SF-portfolio is sought similar to Roy's geometric method but with a different efficient frontier. In case of a finite number of yield scenarios the SF-portfolio selection problem is reduced to a linear mixed-Boolean programming one.

Keywords: portfolio selection, safety first, one-sided risk, probability optimization, chance constraint

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

Category 2: Stochastic Programming

Citation: V.I. Norkin and S.V. Boyko. Safety-First Portfolio Selection. Cybernetics and Systems Analysis, Vol. 48, No. 2, 2012, pp. 180-191.

Download: [PDF]

Entry Submitted: 07/24/2010
Entry Accepted: 07/26/2010
Entry Last Modified: 04/09/2013

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