PORTFOLIO SELECTION USING TIKHONOV FILTERING TO ESTIMATE THE COVARIANCE MATRIX
Markowitz’s Mean-Variance portfolio selection problem (MV problem)chooses weights for stocks in a portfolio based on an estimatedcovariance matrix of stock returns. Our study proposes to reduce noisein the estimation using a Tikhonov filter function. The new methoddecreases the contribution of the smaller eigenvalues of a...