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Abstract: In finance industry portfolio construction deals with how to divide theinvestors- wealth across an asset-classes- menu in order to maximize theinvestors- gain. Main approaches in use at the present are based on variationsof the classical Markowitz model. However, recent evolutions of the worldmarket showed limitations of this method and motivated many researchers andpractitioners to study alternative methodologies to portfolio construction. Inthis paper we propose one approach to optimal portfolio construction based onrecent results on stochastic reachability, which overcome some of the limits ofcurrent approaches. Given a sequence of target sets that the investors wouldlike their portfolio to stay within, the optimal portfolio allocation issynthesized in order to maximize the joint probability for the portfolio valueto fulfill the target sets requirements. A case study in the US market is givenwhich shows benefits from the proposed methodology in portfolio construction. Acomparison with traditional approaches is included.



Autor: Giordano Pola, Gianni Pola

Fuente: https://arxiv.org/







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