Modified Models for Constrained Mean Absolute Deviation Portfolio Optimization

  • J. F. Bello Department of Mathematics, University of Ibadan, Oyo State, Nigeria
  • E. S. Taiwo Faculty of Business and Economics, The University of Winnipeg, MB R3B 2E9, Canada
  • I. Adinya Department of Mathematics, University of Ibadan, Oyo State, Nigeria
Keywords: Portfolio optimization, Short selling, Risk neutral interest rate, Mean absolute deviation, Investor

Abstract

This study addresses portfolio optimization through a comparative analysis of models. Utilizing 15 stocks from S&P 500 over 12 years, it contrasts optimal weights and objective values of five models: Konno and Yamazaki (KY), Feinstein and Thapa (FT), Adjusted Feinstein and Thapa (AFT), and Adjusted ChiangLin et al. (ALC). Employing Pyomo in Python with GLPK solver, findings reveal KY and LC models have identical outcomes. AFT model approximates KY and LC solutions. Modified AFT and ALC models, with short selling and risk-neutral interest rates, closely mimic KY’s results. The study recommends KY’s model or a modified ALC model for portfolio optimization.

Published
2024-01-27
How to Cite
Bello, J. F., Taiwo, E. S., & Adinya, I. (2024). Modified Models for Constrained Mean Absolute Deviation Portfolio Optimization. International Journal of Mathematical Sciences and Optimization: Theory and Applications, 10(1), 12 - 24. Retrieved from http://ijmso.unilag.edu.ng/article/view/2037
Issue
Vol 10 No 1 (2024)
Section
Articles

Copyright (c) 2024 J. F. Bello, E. S. Taiwo, I. Adinya

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License, which permits unrestricted use, distribution, adaptation, and reproduction in any medium, provided that the original work is properly cited.