10. Optimization without constraints
M8l2 11 Optimization Without Constraints Part1 V2
Using the objective function instead of constraints
Assume an optimization objective function has the following terms to minimize:
Objective Function = common Risk + Specific Risk - Expected Return + Transaction Costs
We have some goals that we previously satisfied using constraints:
Market neutral
Position Size
Portfolio Diversification
Can you think about which term in the objective function also serves a similar purpose as these constraints?
M8l2 12 Optimization Without Constraints Part2 V2
