A MEAN-VARIANCE-SKEWNESS PORTFOLIO OPTIMIZATION MODEL

Abstract

We will propose a mean-variance-skewness(MVS) portfolio optimization model, a direct extension of the classical mean-variance model to the situation where the skewness of the rate of return of assets and the third order derivative of a utility function play significant roles in choosing an optimal portfolio. The MVS model enables one to calculate an approximate mean-variance-skewness efficient surface, by which one can compute a portfolio with maximal expected utility for any decreasingly risk averse utility functions. Also, we propose three computational schemes for solving an associated nonconcave maximization problem, and some preliminary computational results will be reported.