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Annals of Operations Research

, Volume 266, Issue 1–2, pp 183–198 | Cite as

Recent advancements in robust optimization for investment management

  • Jang Ho Kim
  • Woo Chang Kim
  • Frank J. Fabozzi
Analytical Models for Financial Modeling and Risk Management

Abstract

Robust optimization has become a widely implemented approach in investment management for incorporating uncertainty into financial models. The first applications were to asset allocation and equity portfolio construction. Significant advancements in robust portfolio optimization took place since it gained popularity almost two decades ago for improving classical models on portfolio optimization. Recently, studies applying the worst-case framework to bond portfolio construction, currency hedging, and option pricing have appeared in the practitioner-oriented literature. Our focus in this paper is on recent advancements to categorize robust optimization models into asset allocation at the asset class level and portfolio selection at the individual asset level, and we further separate robust portfolio selection approaches specific to each asset class. This organization provides a clear overview on how robust optimization is extensively implemented in investment management.

Keywords

Robust optimization Asset allocation Portfolio selection Investment management 

Notes

Acknowledgements

This research was supported by Basic Science Research Program through the National Research Foundation of Korea (NRF) funded by the Ministry of Science, ICT & Future Planning (NRF-2016R1C1B1014492).

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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  • Jang Ho Kim
    • 1
  • Woo Chang Kim
    • 2
  • Frank J. Fabozzi
    • 3
  1. 1.Department of Industrial and Management Systems EngineeringKyung Hee UniversityYongin-siRepublic of Korea
  2. 2.Department of Industrial and Systems EngineeringKorea Advanced Institute of Science and Technology (KAIST)Yuseong-guRepublic of Korea
  3. 3.EDHEC Business SchoolNiceFrance

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