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December 28th, 2012, 04:47 AM   #1
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Eigenvalues & Eigenvectors applied to Portfolio Optimization

Hi.

I am busy working through a paper i came accross online on portfolio optimization. The paper may be accessed on the following link: http://ssrn.com/abstract=1483412 I am struggling, in particular, with the equation 5-6 on page 4. I am not sure how the authors managed to derive the equation. Why are only the first and last eigenvalues used???

Any ideas would be great!!!!

Many thanks in advance.
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January 5th, 2013, 11:49 AM   #2
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Re: Eigenvalues & Eigenvectors applied to Portfolio Optimiza

The paper specifically says that they are looking at the "worst case scenarios". And that basically means they are looking at the extremes- the smallest and largest eigenvalues.
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