Open AccessThis article is
- freely available
On the Diversity Constraints for Portfolio Optimization
Department of Information Management, Yuan Ze University, 135 Yuan-Tung Road, Chungli, Taoyuan 32003, Taiwan
Received: 30 August 2013; in revised form: 19 October 2013 / Accepted: 23 October 2013 / Published: 28 October 2013
Abstract: In the literature, Markowitz’s mean-variance model and its variants have been shown to yield portfolios that put excessive weights on only a few assets. Many diversity constraints were proposed and added to these models to avoid such overly concentrated portfolios. However, since these diversity constraints are formulated differently, it becomes difficult to compare them and study their relationships. This paper proposes a canonical form for the commonly used diversity constraints in the literature, and shows how to transform these diversity constraints into this canonical form. Furthermore, this paper compares these diversity constraints (in the canonical form with the same upper bound) on their ability to shrink the feasible region of the portfolio optimization problem. The results show a subset relation among their feasible regions.
Keywords: portfolio optimization; diversity constraint; norm; entropy
Article StatisticsClick here to load and display the download statistics.
Notes: Multiple requests from the same IP address are counted as one view.
Cite This Article
MDPI and ACS Style
Lin, J.-L. On the Diversity Constraints for Portfolio Optimization. Entropy 2013, 15, 4607-4621.
Lin J-L. On the Diversity Constraints for Portfolio Optimization. Entropy. 2013; 15(11):4607-4621.
Lin, Jun-Lin. 2013. "On the Diversity Constraints for Portfolio Optimization." Entropy 15, no. 11: 4607-4621.