A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs

A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs

Modern Portfolio Theory is the ground upon which most works in portfolio optimization context find their foundations. Many studies attempt to extend the Modern Portfolio Theory to include short sale, leverage and transaction costs, features not considered in Markowitz’s seminal work from 1...

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Bibliographic Details
Main Authors: Giorgio Arici, Marco Dalai, Riccardo Leonardi, Arnaldo Spalvieri
Format: Article
Language:English
Published: MDPI AG 2018-12-01
Series:Journal of Risk and Financial Management
Subjects:
modern portfolio theory
portfolio optimization
matched filter
Online Access:http://www.mdpi.com/1911-8074/12/1/4
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spelling doaj-d5b0342e927e4555981e75ecfc82dfea2020-11-25T00:41:11ZengMDPI AGJournal of Risk and Financial Management1911-80742018-12-01121410.3390/jrfm12010004jrfm12010004A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction CostsGiorgio Arici0Marco Dalai1Riccardo Leonardi2Arnaldo Spalvieri3Department of Information Engineering, University of Brescia, Via Branze 38, 25123 Brescia, ItalyDepartment of Information Engineering, University of Brescia, Via Branze 38, 25123 Brescia, ItalyDepartment of Information Engineering, University of Brescia, Via Branze 38, 25123 Brescia, ItalyDepartment of Electronics, Information and BioEngineering, Politecnico di Milano, Via Ponzio 34/5, 20133 Milan, ItalyModern Portfolio Theory is the ground upon which most works in portfolio optimization context find their foundations. Many studies attempt to extend the Modern Portfolio Theory to include short sale, leverage and transaction costs, features not considered in Markowitz’s seminal work from 1952. The drawback of such theories is that they complicate considerably the simplicity of the original technique. Here, we propose a simple and unified method, which takes inspiration from, and shows connections with the matched filter theory in communications, to evaluate the best portfolio allocation with the possibility of including a leverage factor and short sales. Finally, we extend the presented method to also consider the transaction costs.http://www.mdpi.com/1911-8074/12/1/4modern portfolio theoryportfolio optimizationmatched filter
collection DOAJ
language English
format Article
sources DOAJ
author Giorgio Arici
Marco Dalai
Riccardo Leonardi
Arnaldo Spalvieri
spellingShingle Giorgio Arici
Marco Dalai
Riccardo Leonardi
Arnaldo Spalvieri
A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs
Journal of Risk and Financial Management
modern portfolio theory
portfolio optimization
matched filter
author_facet Giorgio Arici
Marco Dalai
Riccardo Leonardi
Arnaldo Spalvieri
author_sort Giorgio Arici
title A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs
title_short A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs
title_full A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs
title_fullStr A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs
title_full_unstemmed A Communication Theoretic Interpretation of Modern Portfolio Theory Including Short Sales, Leverage and Transaction Costs
title_sort communication theoretic interpretation of modern portfolio theory including short sales, leverage and transaction costs
publisher MDPI AG
series Journal of Risk and Financial Management
issn 1911-8074
publishDate 2018-12-01
description Modern Portfolio Theory is the ground upon which most works in portfolio optimization context find their foundations. Many studies attempt to extend the Modern Portfolio Theory to include short sale, leverage and transaction costs, features not considered in Markowitz’s seminal work from 1952. The drawback of such theories is that they complicate considerably the simplicity of the original technique. Here, we propose a simple and unified method, which takes inspiration from, and shows connections with the matched filter theory in communications, to evaluate the best portfolio allocation with the possibility of including a leverage factor and short sales. Finally, we extend the presented method to also consider the transaction costs.
topic modern portfolio theory
portfolio optimization
matched filter
url http://www.mdpi.com/1911-8074/12/1/4
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