Mean-Variance vs. Full-Scale Optimization: Broad Evidence for the UK
(2008) In Working Papers, Department of Economics, Lund University- Abstract
- In the Full-Scale Optimization approach the complete empirical financial return probability distribution is considered; and the utility maximizing solution is found through numerical optimization. Using a portfolio choice setting of three UK equity indices we identify several utility functions featuring loss aversion and prospect theory; under which Full-Scale Optimization is a substantially better approach than the mean-variance approach. As the equity indices have return distributions with small deviations from normality; the findings indicate much broader usefulness of Full-Scale Optimization than has earlier been shown. The results hold in and out of sample; and the performance improvements are given in terms of utility as well as... (More)
- In the Full-Scale Optimization approach the complete empirical financial return probability distribution is considered; and the utility maximizing solution is found through numerical optimization. Using a portfolio choice setting of three UK equity indices we identify several utility functions featuring loss aversion and prospect theory; under which Full-Scale Optimization is a substantially better approach than the mean-variance approach. As the equity indices have return distributions with small deviations from normality; the findings indicate much broader usefulness of Full-Scale Optimization than has earlier been shown. The results hold in and out of sample; and the performance improvements are given in terms of utility as well as certainty equivalents. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/1387590
- author
- Nilsson, Birger LU
- organization
- publishing date
- 2008
- type
- Working paper/Preprint
- publication status
- published
- subject
- keywords
- portfolio choice, utility maximization, full-scale
- in
- Working Papers, Department of Economics, Lund University
- issue
- 1
- publisher
- Department of Economics, Lund University
- language
- English
- LU publication?
- yes
- id
- 40bdca38-b0ef-496d-8d00-a901ab875fea (old id 1387590)
- date added to LUP
- 2016-04-04 10:02:50
- date last changed
- 2024-09-17 15:44:46
@misc{40bdca38-b0ef-496d-8d00-a901ab875fea, abstract = {{In the Full-Scale Optimization approach the complete empirical financial return probability distribution is considered; and the utility maximizing solution is found through numerical optimization. Using a portfolio choice setting of three UK equity indices we identify several utility functions featuring loss aversion and prospect theory; under which Full-Scale Optimization is a substantially better approach than the mean-variance approach. As the equity indices have return distributions with small deviations from normality; the findings indicate much broader usefulness of Full-Scale Optimization than has earlier been shown. The results hold in and out of sample; and the performance improvements are given in terms of utility as well as certainty equivalents.}}, author = {{Nilsson, Birger}}, keywords = {{portfolio choice; utility maximization; full-scale}}, language = {{eng}}, note = {{Working Paper}}, number = {{1}}, publisher = {{Department of Economics, Lund University}}, series = {{Working Papers, Department of Economics, Lund University}}, title = {{Mean-Variance vs. Full-Scale Optimization: Broad Evidence for the UK}}, year = {{2008}}, }