Low order-value approach for solving VaR-constrained optimization problems |
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| Authors: | E. G. Birgin L. F. Bueno N. Krejić J. M. Martínez |
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| Affiliation: | 1.Department of Computer Science IME-USP,University of S?o Paulo,S?o Paulo,Brazil;2.Department of Applied Mathematics, Institute of Mathematics, Statistics and Scientific Computing (IMECC),University of Campinas,Campinas,Brazil;3.Department of Mathematics and Informatics,University of Novi Sad,Novi Sad,Serbia |
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| Abstract: | In Low Order-Value Optimization (LOVO) problems the sum of the r smallest values of a finite sequence of q functions is involved as the objective to be minimized or as a constraint. The latter case is considered in the present paper. Portfolio optimization problems with a constraint on the admissible Value at Risk (VaR) can be modeled in terms of a LOVO problem with constraints given by Low order-value functions. Different algorithms for practical solution of this problem will be presented. Using these techniques, portfolio optimization problems with transaction costs will be solved. |
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