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A NOTE ON OPTIMAL PORTFOLIO SELECTION UNDER STABLE PARETIAN DISTRIBUTIONS *
Author(s) -
Cheung C. Sherman,
Kwan Clarence C. Y.,
Yip Patrick C. Y.
Publication year - 1985
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1985.tb01495.x
Subject(s) - portfolio , normality , mathematical economics , selection (genetic algorithm) , econometrics , robustness (evolution) , property (philosophy) , modern portfolio theory , computer science , economics , mathematical optimization , mathematics , statistics , financial economics , artificial intelligence , biochemistry , chemistry , philosophy , epistemology , gene
Elton, Gruber, and Padberg's [2] [3] ranking procedure and Kwan's [6] nonranking procedure for optimal portfolio selection lead to the same solution. This is because of a particular functional property of the cutoff rate for security performance. In this note, the robustness of that functional property is demonstrated the normality of security returns assumed in the above studies is relaxed to encompass the general family of stable Paretian distributions. The proof here is an important step toward portfolio analysis using some multiindex models when securities cannot be ranked.