Hello to everyone I am writing because I am having a bit of tough time figuring out how to replicate the constraints for a Portfolio Optimization using the set up from Jacobs & Levy 2006 - 'Enanched Active Equity Strategies'-
So i have a couple of question:
first is a merely conceptual one, I am wondering if it would be correct to perform the portfolio optimization in two steps, first a classical min var optimization, and then only after using the inputs from my previous optimization to put in the quadrartic utility function to understand the utility level for my investor.
I was wondering for an 'easy way' to implement the constraints of dollar neutral, market neutral, and active weights constraints of 10% compared to my benchmark (assuming I am using as benchmark 1/N). I would love an analytical explanation of these, I am currently trying to approach this problem by Lagrange and KT conditions, but it is still a bit unclear to me.
I hope I have been specific enough and I am not wasting your time, thanks for your help