New method boosts investment portfolio performance by up to hundreds of basis points annually.
An optimization method was developed to create investment portfolios that outperform a benchmark for risk-averse investors. By using Quadratic Programming, the method was applied to historical equity returns data. The new method improves portfolio performance compared to traditional Mean-Variance optimization, especially for low to medium risk levels. This improvement is achieved by considering the complex condition of Decreasing Absolute Risk Aversion in addition to simpler risk aversion conditions.