Abstract
We will survey important properties of the mean–absolute deviation (MAD) portfolio optimization model, which was introduced in 1990 to cope with very large–scale portfolio optimization problems. MAD model has been used for solving huge portfolio optimization models including internationally diversified investment model, long-term ALM model, mortgage–backed security portfolio optimization model. Also, the MAD model enjoys several nice theoretical properties. In particular, all CAPM type relations for mean–variance model hold for the MAD model as well. Further, the MAD model is more compatible to the fundamental principle of rational decision making.
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