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Optimal construction of a fund of funds

Petri Hilli(petri.hilli***at***qsa.fi)
Matti Koivu(Matti.Koivu***at***finanssivalvonta.fi)
Teemu Pennanen(teemu.pennanen***at***tkk.fi)

Abstract: We study the problem of diversifying a given initial capital over a finite number of investment funds that follow different trading strategies. The investment funds operate in a market where a finite number of underlying assets may be traded over finite discrete time. We present a numerical procedure for finding a diversification that is optimal in the sense of a given convex risk measure. The procedure is illustrated on an asset-liability management problem where the liabilities correspond to a pension insurance portfolio.

Keywords: portfolio optimization, Galerkin methods

Category 1: Applications -- OR and Management Sciences


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Entry Submitted: 05/04/2011
Entry Accepted: 05/04/2011
Entry Last Modified: 05/04/2011

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