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  4. Threshold Accepting Approach to Improve Bound-based Approximations for Portfolio Optimization
 
book part or chapter

Threshold Accepting Approach to Improve Bound-based Approximations for Portfolio Optimization

Kuhn, Daniel  
•
Parpas, Panos
•
Rustem, Berç
Kontoghiorghes, Erricos J.
•
Rustem, Berç
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2008
Computational Methods in Financial Engineering

A discretization scheme for a portfolio selection problem is discussed. The model is a benchmark relative, mean-variance optimization problem in continuous time. In order to make the model computationally tractable, it is discretized in time and space. This approximation scheme is designed in such a way that the optimal values of the approximate problems yield bounds on the optimal value of the original problem. The convergence of the bounds is discussed as the granularity of the discretization is increased. A threshold accepting algorithm that attempts to find the most accurate discretization among all discretizations of a given complexity is also proposed. Promising results of a numerical case study are provided.

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Type
book part or chapter
DOI
10.1007/978-3-540-77958-2_1
Author(s)
Kuhn, Daniel  
Parpas, Panos
Rustem, Berç
Editors
Kontoghiorghes, Erricos J.
•
Rustem, Berç
•
Winker, Peter
Date Issued

2008

Publisher

Springer Verlag

Publisher place

Berlin

Published in
Computational Methods in Financial Engineering
ISBN of the book

978-3-540-77957-5

Start page

3

End page

26

Subjects

Portfolio optimization

•

Stochastic programming

•

Time discretization

•

Bounds

•

Threshold accepting

Written at

OTHER

EPFL units
RAO  
Available on Infoscience
January 22, 2014
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/100113
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