We consider a classical one-period portfolio selection problem in the mean-variance approach. All the methods that are largely used in practical applications compute the efficient portfolios by inverting the covariance matrix of returns. It is well known that large dimension problems may suffer from ill-conditioning when matrix inversion is involved. We propose a different method for computing efficient solutions based on the computation of eigenvalues.
On the selection of an efficient portfolio in the mean-variance approach
PERETTI, Alberto
2004-01-01
Abstract
We consider a classical one-period portfolio selection problem in the mean-variance approach. All the methods that are largely used in practical applications compute the efficient portfolios by inverting the covariance matrix of returns. It is well known that large dimension problems may suffer from ill-conditioning when matrix inversion is involved. We propose a different method for computing efficient solutions based on the computation of eigenvalues.
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