Advantages Of Portfolio Optimization

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Robust Optimization Approach to Multi-Period Portfolio Selection Progress Report

Introduction
Investors always seek for a way that they can get back greatest return while enjoying minimized risk. Instead of investing in a single asset, holding a portfolio is obviously less risky. However, how to select the best portfolio among tens of thousands of assets in today’s financial market? The stringent need of investors promote the raising of modern portfolio theory. In 1952, Harry Markowitz [1] established the fundamental model of modern portfolio theory: the Markowitz model, also called the mean-variance model. This model aimed to achieve a tradeoff between the expected return and the risk of return. As shown in Figure 1, among all efficient portfolios, the efficient frontier consisted of all those with highest return at each given risk level. C_1,C_2,and C_3 were the investors indifference curves which showed that traders prefer portfolios with high return or low risk. The tangent point R of the highest indifference curve and the efficient frontier gave the optimized portfolio. Figure 1: Efficient Portfolio and Trader’s Indifference Curve in
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One direction among them is the robust portfolio optimization. It was carried out to compensate the instability and sensitivity of the classical optimal model due to the uncertainty of the coefficients of variables. This paper aims to use the robust optimization techniques to take input uncertainties into consideration. Moreover, the model achieved should be applicable to multi-period portfolio selection problems. In the next section, previous studies on this topic were reviewed. The following section introduced the method used to get the final result. Section 4 discussed the achievement until now and the problems that have arisen. The final section summarized the current research progress and possible direction in
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