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Robust Asset Allocation

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Abstract

This article addresses the problem of finding an optimal allocation of funds among different asset classes in a robust manner when the estimates of the structure of returns are unreliable. Instead of point estimates used in classical mean-variance optimization, moments of returns are described using uncertainty sets that contain all, or most, of their possible realizations. The approach presented here takes a conservative viewpoint and identifies asset mixes that have the best worst-case behavior. Techniques for generating uncertainty sets from historical data are discussed and numerical results that illustrate the stability of robust optimal asset mixes are reported.

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Authors and Affiliations

  1. Department of Mathematical Sciences, Carnegie Mellon University, Pittsburgh, PA, USA

    R.H. Tütüncü

  2. Quantitative Analysis, National City Investment Management Company, Cleveland, OH, USA

    M. Koenig

Authors
  1. R.H. Tütüncü
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  2. M. Koenig
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Tütüncü, R., Koenig, M. Robust Asset Allocation. Ann Oper Res 132, 157–187 (2004). https://doi.org/10.1023/B:ANOR.0000045281.41041.ed

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  • DOI: https://doi.org/10.1023/B:ANOR.0000045281.41041.ed

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