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portfolio optimization sign in to follow this
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Accelerated Portfolio Optimization with Conditional Value-at-Risk Constraints using a Cutting-Plane Method
Year Of Publication: 2014
Month Of Publication: August
Resource Link: Click here to open
Pages: 9
Download Count: 0
View Count: 1649
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 8-17-2014
Publisher: Administrator
Summary
Financial portfolios are often optimized for maximum profit while subject to a constraint formulated in terms of the Conditional Value-at-Risk (CVaR). This amounts to solving a linear problem. However, in its original formulation this linear problem has a very large number of linear constraints, too many to be enforced in practice. In the literature this is addressed by a reformulation of the problem using so-called dummy variables. This reduces the large number of constraints in the original linear problem at the cost of increasing the number of variables. In the context of reinsurance portfolio optimization we observe that the increase in variable count can lead to situations where solving the reformulated problem takes a long time. Therefore we suggest a different approach. We solve the original linear problem with cutting-plane method: The proposed algorithm starts with the solution of a relaxed problem and then iteratively adds cuts until the solution is approximated within a preset threshold.
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Author(s)
Hofmann, Georg Sign in to follow this author
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