Portfolio Optimization Problem with Non-identical Variances of Asset Returns using Statistical Mechanical Informatics

Abstract

The portfolio optimization problem in which the variances of the return rates of assets are not identical is analyzed in this paper using the methodology of statistical mechanical informatics, specifically, replica analysis. We define two characteristic quantities of an optimal portfolio, namely, minimal investment risk and concentrated investment level, in order to solve the portfolio optimization problem and analytically determine their asymptotical behaviors using replica analysis. Moreover, numerical experiments were performed, and a comparison between the results of our simulation and those obtained via replica analysis validated our proposed method.