A general portfolio model for multivariate symmetric stable distributions (Q1058255)

The object of the present paper is to extend a certain statistical model in stable portfolio analysis. \(Y^ T=\{X_ 1,X_ 2,...,X_ p\}\) is a row vector of the price changes of p assets which have a p-variate stable distribution. A general problem is to allocate the investor's resources into the p assets in order to obtain a portfolio \(\sum c_ iX_ i\) for which the expected return is a maximum at the same time minimizing its risk. Only the restricted problem, called the Model I portfolio analysis, is considered, where one minimizes the risk of the portfolio. Previous work on the subject deals with a case where the p assets could be divided into two unrelated or disassociated groups and their price- change subvectors \(Y_ 1\) and \(Y_ 2\) have intra-class association pattern. In this paper a more realistic and practical problem is discussed when the p assets are interrelated and have different intra- class association patterns.