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Multiobjective portfolio optimization: bridging mathematical theory with asset management practice

  • Multiple Objective Optimization
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Abstract

We attempt to establish an integrated portfolio optimization business framework, in order to bridge the underlying gap between the complex mathematical theory of multiobjective mathematical programming and asset management practice. Our aim is to assist practitioners and portfolio managers in formulating successful investment strategies, by providing them with an effective decision support tool. In particular, we propose a multiobjective portfolio model, able to support the simultaneous optimization of multiple investment objectives. We also manage to integrate a set of sophisticated real-world non-convex investment policy limitations, such as the cardinality constraints, the buy-in thresholds, the transaction costs, along with particular normative rules. The underlying investment management rationale of the proposed managerial protocol is displayed through an illustrative business flowchart, while we also provide an analytical step-by-step portfolio management business routine. The validity of the model is verified through an extended empirical testing application on the Eurostoxx 50. According to the results, a sufficient number of efficient or Pareto optimal portfolios produced by the model, appear to possess superior out-of-sample returns with respect to the underlying benchmark.

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Authors and Affiliations

  1. ESSCA Grande École, Paris, France

    Panos Xidonas

  2. University of Cyprus, Nicosia, Cyprus

    Christis Hassapis

  3. National Technical University of Athens, Athens, Greece

    George Mavrotas

  4. Athens University of Economics and Business, Athens, Greece

    Christos Staikouras

  5. Audencia Business School, Nantes, France

    Constantin Zopounidis

Authors
  1. Panos Xidonas
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  2. Christis Hassapis
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  3. George Mavrotas
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  4. Christos Staikouras
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  5. Constantin Zopounidis
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Correspondence to Panos Xidonas.

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Xidonas, P., Hassapis, C., Mavrotas, G. et al. Multiobjective portfolio optimization: bridging mathematical theory with asset management practice. Ann Oper Res 267, 585–606 (2018). https://doi.org/10.1007/s10479-016-2346-6

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  • DOI: https://doi.org/10.1007/s10479-016-2346-6

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