A Bi-Objective Portfolio Optimization with Conditional Value-at-Risk

Bartosz Sawik

Abstract


This paper presents a bi-objective portfolio model with the expected return as a performance measure and the expected worst-case return as a risk measure. The problems are formulated as a bi-objective linear program. Numerical examples based on 1000, 3500 and 4020 historical daily input data from the Warsaw Stock Exchange are presented and selected computational results are provided. The computational experiments prove that the proposed linear programming approach provides the decision maker with a simple tool for evaluating the relationship between the expected and the worst-case portfolio return.


Keywords


multi-criteria decision making; portfolio optimization; conditional value-at-risk; weighting approach; linear programming

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DOI: https://doi.org/10.7494/dmms.2010.4.2.47

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