Abstract
We survey the Mean-Absolute Deviation (MAD) portfolio optimization model, which was first introduced in 1990 to cope with very large-scale portfolio optimization problems. The MAD model is in fact used to solve huge portfolio optimization models including the internationally diversified investment model, the long-term asset liability management (ALM) model and the mortgage-backed security portfolio optimization model. It was recently shown that the MAD model possess several advantageous theoretical properties. In particular, all capital asset pricing model (CAPM)-type relations for the mean-variance model also hold for the MAD model. Furthermore, the MAD model is more compatible with the fundamental principle of rational decision-making.
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