Applying Markowitz's Critical Line Algorithm
University of Bern Economics Working Paper No. 07-01
26 Pages Posted: 5 Apr 2006
Date Written: January 2007
Abstract
We provide a Matlab quadratic optimization tool based onMarkowitz's critical line algorithm that significantly outperforms standard software packages and a recently developed operations research algorithm. As an illustration: For a 2000 asset universe our method needs less than a second to compute the whole frontier whereas the quickest competitor needs several hours. This paper can be considered as a didactic alternative to the critical line algorithm such as presented by Markowitz and treats all steps required by the algorithm explicitly. Finally, we present a benchmark of different optimization algorithms' performance.
Keywords: finance, portfolio selection, efficient frontier, critical line algorithm, quadratic optimization, numerical methods
JEL Classification: C15, C61, C63, G11
Suggested Citation: Suggested Citation
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