Annals of Operations Research

, Volume 132, Issue 1–4, pp 157–187

Robust Asset Allocation

  • R.H. Tütüncü
  • M. Koenig
Article

DOI: 10.1023/B:ANOR.0000045281.41041.ed

Cite this article as:
Tütüncü, R. & Koenig, M. Ann Oper Res (2004) 132: 157. doi:10.1023/B:ANOR.0000045281.41041.ed

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.

robust optimization mean-variance optimization saddle-point problems 

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • R.H. Tütüncü
    • 1
  • M. Koenig
    • 2
  1. 1.Department of Mathematical SciencesCarnegie Mellon UniversityPittsburghUSA
  2. 2.Quantitative AnalysisNational City Investment Management CompanyClevelandUSA

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