Why is there a minimum bound on the annualized volatility for the constraints of this problem?
Hello - we want all the solutions to have similar volatility to be comparable, there are a minimum and maximum bound on the volatility to make sure the strategy is neither too leveraged (or too risky) nor too long in cash (or not invested, or little invested).
This is a proper representation of the type of constraints you would find in asset management, you wouldn’t want to put your money to an asset manager who charges yearly fees if they invest very little of it. Please check out the template example and try to understand how it is dealt with, particularly the lines when you rescale to 1 and add leverage.
Anyhow, that’s now a constraint in the competition and everyone has to comply. I hope that helps.
Thanks, Lionel.
Thank you for your detailed explanation!