Robust Portfolio Optimization using CAPM Approach

In this paper we propose a robust optimization approach for multi-period portfolio problem. Since asset return in any market is an uncertain value، considering a fixed known value for asset return will result in unreliable portfolio. In this paper، in order to cope with this deficiency we present robust optimization approach. Robust optimization models assume asset retunes as uncertain values within an interval and project the risk aversion of investor to error tolerance of asset return estimation. In this paper we make use of CAPM to estimate asset returns. Considering both linear model for asset returns and linear robust optimization approach which have been presented، keeps linearity of the final model which has a very interesting computational efficiency. The linearity of the proposed model allows the decision maker to add some important constraints such as tax and transaction costs.