Abstract
A new expected utility (EU) portfolio selection model is proposed under the assumption that the trading volume has the box constraints. In the model, the expected utility function is quadratic. The model is solved by a pivoting algorithm which needn’t be added any slack, surplus and artificial variable, and is easy to operate and works efficiently. A numerical example of a portfolio selection problem is given to compare the new model and the EU portfolio selection model not considering upper bounds. The comparison shows that when the risk preference coefficient is greater than a critical value, the risk and expected return don’t increase as the coefficient increases; The relationship between the risk preference coefficient and the expected return (or risk) is nonlinear while that is linear in the case when short sales are allowed; the efficient portfolio selection considering the box constraints is subset of that not considering the constraints.
The work was supported by a research grant of Education Ministry, No. 08JC630062.
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Zhang, P., Yu, L. (2011). Optimization of the Expected Utility Portfolio Selection Model with Box Constraints. In: Shen, G., Huang, X. (eds) Advanced Research on Computer Science and Information Engineering. CSIE 2011. Communications in Computer and Information Science, vol 153. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-21411-0_36
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DOI: https://doi.org/10.1007/978-3-642-21411-0_36
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