In this paper, a novel prediction based mean-variance (PBMV) model has been proposed, as an alternative to the conventional Markowitz mean-variance model, to solve the constrained portfolio optimization problem. In the Markowitz mean-variance model, the expected future return is taken as the mean of the past returns, which is incorrect. In the proposed model, first the expected future returns a...

Keywords: Survey LP computable mean-risk and mean-safety models Real features Transaction costs Exact and heuristic algorithms a b s t r a c t Markowitz formulated the portfolio optimization problem through two criteria: the expected return and the risk, as a measure of the variability of the return. The classical Markowitz model uses the variance as the risk measure and is a quadratic programm...

Asset allocation among diverse financial markets is essential for investors especially under situations such as the financial crisis of 2008. Portfolio optimization is the most developed method to examine the optimal decision for asset allocation. We employ the hidden Markov model to identify regimes in varied financial markets; a regime switching model gives multiple distributions and this inf...

This paper gives an asymptotic analysis of the mean-variance (Markowitz-type) portfolio selection under mild assumptions on the market behavior. Theoretical results show the rate of underperformance of the risk aware Markowitz-type portfolio strategy in growth rate compared to the log-optimal portfolio strategy, which does not have explicit risk control. Statements are given with and without fu...

where X and Y are random returns. The main innovation introduced by Markowitz is to measure the risk of a portfolio via the joint (multivariate) distribution of returns of all assets. Multivariate distributions are characterized by the statistical (marginal) properties of all component random variables and by their dependence structure. Markowitz described the former by the first two moments of...