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Renato Bruni, Francesco Cesarone, Andrea Scozzari and Fabio Tardella
''No arbitrage and a linear portfolio selection model''
( 2013, Vol. 33 No.2 )
We propose a linear bi-objective optimization approach to the problem of finding a portfolio that maximizes average excess return with respect to a benchmark index while minimizing underperformance over a learning period. We establish some theoretical results linking classical No Arbitrage conditions to the existence of a feasible portfolio for our model that strictly outperforms the index. Empirical analyses on publicly available real-world financial datasets show the effectiveness of the model and confirm the described theoretical results.
Keywords: Enhanced Index Tracking, Asset Management, Portfolio Selection, No Arbitrage, Linear Programming
JEL: C6 - Mathematical Methods and Programming: General
Manuscript Received : Mar 20 2013 Manuscript Accepted : May 21 2013

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