Article

Mean-Variance-Skewness-Kurtosis efficiency of portfolios computed via moment-based bounds

Steftcho DokovSchool of Computer and Information Engineering, INHA University in Tashkent, Tashkent, UzbekistanDavid P. MortonDepartment of Industrial Engineering and Management Sciences, Northwestern University, Evanston, IL, USAIvilina PopovaDepartment of Finance and Economics, Texas State University, San Marcos, TX, USA

2017en

ABI

Abstract

We analyze moment-based bounding approximations on the expected value of a utility function. We show that optimizing these bounds yields a solution, which is mean-variance (MV) or MV-skewness-kurtosis (MVSK) efficient depending on how many moments are included in the approximation. To illustrate the approach we apply it to an asset allocation model with a shortfall utility function. Numerical results are presented for an out of sample trading strategy using sixteen years of daily trading for a portfolio of six assets. The strategy significantly outperforms a standard market index, Dow Jones Industrial Average.

Topics

Risk and Portfolio Optimization Financial Markets and Investment Strategies Stochastic processes and financial applications

Identifiers

DOI: 10.1109/icisct.2017.8188577

Citations and references

Cited by 3 25 references

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