Geometric Representation of the Mean-Variance-Skewness Portfolio Frontier Based upon the Shortage Function

The literature suggests that investors prefer portfolios based on mean, variance and skewness rather than portfolios based on mean-variance (MV) criteria solely. Furthermore, a small variety of methods have been proposed to determine mean-variance-skewness (MVS) optimal portfolios. Recently, the shortage function has been introduced as a measure of efficiency, allowing to characterize MVS optimalportfolios using non-parametric mathematical programming tools. While tracing the MV portfolio frontier has become trivial, the geometric representation of the MVS frontier is an open challenge. A hitherto unnoticed advantage of the shortage function is that it allows to geometrically represent the MVS portfolio frontier. The purpose of this contribution is to systematically develop geometric representations of the MVS portfolio frontier using the shortage function and related approaches.