2024/01/05 by Albert Dorador, Dorador, Albert · 1 voice
Decision Sciences · Economics, Econometrics and Finance · Mathematics · #FOS: Economics and business #FOS: Mathematics #Financial Markets and Investment Strategies #Optimization and Control (math.OC) #Portfolio Management (q-fin.PM) #Risk and Portfolio Optimization #Stochastic processes and financial applications #math.OC #q-fin.PM
paper · pdf · doi:10.48550/arxiv.2401.02601
openalex publication_date 2024/01/05 · arxiv published 2024/01/05 · arxiv updated 2024/01/05 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We propose an alternative linearization to the classical Markowitz quadratic portfolio optimization model, based on maximum drawdown. This model, which minimizes maximum portfolio drawdown, is particularly appealing during times of financial distress, like during the COVID-19 pandemic. In addition, we will present a Mixed-Integer Linear Programming variation of our new model that, based on our out-of-sample results and sensitivity analysis, delivers a more profitable and robust solution with a 200 times faster solving time compared to the standard Markowitz quadratic formulation.