For risky financial securities with given expected return vector and covariance matrix, we propose the concept of a robust profit opportunity in single and multiple period settings. We show that the problem of finding the “most robust” profit opportunity can be solved as a convex quadratic programming problem, and investigate its relation to the Sharpe ratio.
Citation
Technical Report, Department of Mathematical Sciences, Carnegie Mellon University, Pittsburgh, PA 15213, USA, August 2004.