An integer programming algorithm for portfolio selection with fixed charges

✍ Scribed by Mary W. Cooper; Keyvan Farhangian

• Publisher: John Wiley and Sons
• Year: 1982
• Tongue: English
• Weight: 262 KB
• Volume: 29
• Category: Article
• ISSN: 0894-069X
• DOI: 10.1002/nav.3800290113

✦ Synopsis

Abstract

A mean‐variance portfolio selection model with limited diversification is formulated in which transaction and management costs are incorporated as the sum of a linear cost and a fixed cost. The problem is a fixed charge integer programming problem solved by hypersurface search using dynamic programming. Fathoming is performed in the forward pass of dynamic programming so that values of the state variable which correspond to infeasible solutions are eliminated from the tables. This logic permits the solution of problems with 20–30 possible investments.