Skip to main content
SpringerLink
Log in
Book cover

New Operational Approaches for Financial Modelling pp 19–33Cite as

Optimization Techniques for Portfolio Selection

  • Conference paper

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

Abstract

Portfolio selection is a vital part of financial management and investment decision making. Optimization techniques can be effi ciently used to solve many classes of portfolio selection problems (e.g. the classical Markowitz mean-variance model). In this paper we present optimization algorithms and discuss certain computational complexity issues related to portfolio selection problems.

*

Invited paper. “19th Meeting of the EURO Working Group on Financial Modelling”. Technical University of Crete. Chania. Greece (November 28-30. 1996).

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   84.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. W. Brian Arthur. “Complexity in Economic and Financial Markets”. Journal of Complexity Vol. 1 No. 1 (1995).

    Google Scholar 

  2. C.R. Bector, A. Cambini. “Fractional Programming — Some Resent Results”. In Generalized Convexity and Fractional Programming with applications. Springer-Verlag. Lecture Notes in Economics and Mathematical Systems. 345 (1988) 86–98.

    Article  Google Scholar 

  3. A. Ben-Tal. A. Ben-Israel. “A Recourse certainty equivalent for decisions Under Uncertainty”, Annals of Operations Research, 30 (1991) 3–44.

    Article  Google Scholar 

  4. A. Ben-Tal. M. Teboulle, “Portfolio Theory for the Recourse Certainty Equivalent Maximizing investor”, Annals of Operations Research, 31 (1991) 479–500.

    Article  Google Scholar 

  5. J.-P. Crouzeix, J.A. Ferland. S. Schaible, “Improved Analysis of the Generalized Convexity of a Function in Portfolio Theory”, In Generalized Convexity and Frac tional Programming with applications, Springer-Verlag, Lecture Notes in Economics and Mathematical Systems. 345 (1988) 287–294.

    Article  Google Scholar 

  6. D.M. Cutler, J.M. Poterba and L.H. Summers, “What Moves Stock Prizes?”, The Journal of Portfolio Management (1989) 4-12.

    Google Scholar 

  7. R.S. Dembo, J.M. Mulvey. S.A. Zenios, “Large-Scale Nonlinear Network Models and their Application”. Operations Research. 37:3 (1989) 353–372.

    Article  Google Scholar 

  8. R.S. Dembo. “Scenario Optimization”, Annals of Operations Research, 30 (1990) 63–80.

    Article  Google Scholar 

  9. R.S. Dembo and A. J. King, “Tracking Models and the Optimal Regret Distribution”, Applied Stochastic Models and Data Analysis 8 (1992) 151–157.

    Article  Google Scholar 

  10. R. Dobbins, S.F. Witt, Portfolio Theory and Investment Management, Martin Robertson & Company Ltd., Oxford (1983).

    Google Scholar 

  11. D. Duffie, T.-S. Sun, “Transactions costs and Portfolio Choice in a Discrete-Continuous-Time Setting”, Journal of Economic Dynamics and Control, 14 (1990) 35–51.

    Article  Google Scholar 

  12. E.J. Elton, M.J. Gruber, Modern Portfolio Theory and Investment Analysis (2nd edition), John Wiley & Sons, Inc. (1984).

    Google Scholar 

  13. C.A. Floudas, P. Hansen, B. Jaumard. “Reformulation of Two Bond Portfolio Optimization Models”. GERAD, Montreal, Canada (1991).

    Google Scholar 

  14. F. Glover, C.K. Jones, “A Stochastic Network Model and Large-Scale Mean-Variance Algorithm for Portfolio Selection”, Journal of Information & Optimiza tion Sciences, 9:3 (1988) 299–316.

    Google Scholar 

  15. R.C. Green, “Positively Weighted Portfolios on the Minimum-Variance Frontier”, The Journal of Finance, 41:5 (1986) 1051–1068.

    Article  Google Scholar 

  16. W.W. Hager, “Analysis and Implementation of a Dual Algorithm for Constrained Optimization”, Journal of Optimization Theory and applications, 79 (1993) 427–462.

    Article  Google Scholar 

  17. R. Horst and P.M. Pardalos (Editors), “Handbook of Global Optimization”, Kluwer Academic Publishers, 1995.

    Google Scholar 

  18. R. Horst, P. M. Pardalos and N.V. Thoai, “Introduction to Global Optimization”, Kluwer Academic Publishers, 1995.

    Google Scholar 

  19. H. Konno, “Bond Portfolio Optimization by Bilinear Fractional Programming”. Journal of the Operations Research Society of Japan, 32:2 (1989) 143–158.

    Google Scholar 

  20. A. Linbeck (Editor). “Nobel Lectures: Economic Sciences 1969-1980”, World Sci entific (1992).

    Google Scholar 

  21. J. Lintner, “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets”. Review of Economics and Statistics, 47 (1965) 13–37.

    Article  Google Scholar 

  22. L.C. MacLean, W.T. Ziemba, “Growth-Security Profiles in Capital Accumulation Under Risk”. Annals of Operations Research, 31 (1991) 501–510.

    Article  Google Scholar 

  23. John L. Maginn, Donald L. Tuttle (Editors). Managing Investment Portfolios, A Dynamic Process, Update 1984-85, Warren. Gorham & Lamont, Inc. (1985).

    Google Scholar 

  24. Karl-Göran Mäler (Editor). “Nobel Lectures: Economic Sciences 1981-1990”, World Scientific (1992).

    Google Scholar 

  25. B.C. Malkiel, “A Random Walk Down Wall Street”, Norton, New York (1995).

    Google Scholar 

  26. C.D. Maranas, I.P. Androulakis. C.A. Floudas. A.J. Berger, and J.M. Mulvey, “Solving Stochastic Control Problems in Finance via Global Optimization”. J. of Economics. Dynamics and Control (1996).

    Google Scholar 

  27. H. Markowitz, “Portfolio Selection”, The Journal of Finance, 7:1 (1952) 77–91.

    Google Scholar 

  28. H. Markowitz, Portfolio Selection, Efficient Diversification of Investments (2nd edition), Basil Blackwell Ltd. (1991). (A reprint of the original 1959 edition.).

    Google Scholar 

  29. P.L. McEntire, “Portfolio Theory for Independent Assets”, Management Science, 30:8 (1984) 952–963.

    Article  Google Scholar 

  30. A.J. Morton and S.R. Pliska, “Optimal Portfolio Management With Transaction Costs” Mathematical Finance Vol. 5. No. 4 (1995) 337–356.

    Article  Google Scholar 

  31. J.M. Mulvey, H. Vladimirou, “Applying the Progressive Hedging Algorithm to Stochastic Generalized Networks”, Annals of Operations Research, 31 (1991) 399–424.

    Article  Google Scholar 

  32. A. Nagurney, “Variational Inequalities in the Analysis and Computation of Multisector, Multi-instrument Financial Equilibria”, Journal of Economic Dynamics and Control, 18 (1994) 161–184.

    Article  Google Scholar 

  33. A. Nagurney, J. Dong, and M. Hughes, “Formulation and Computation of General Financial Equilibrium”, Optimization, 26 (1992) 339–354.

    Article  Google Scholar 

  34. P.M. Pardalos, “An Algorithm for a Class of Nonlinear Fractional Problems Using Ranking of the Vertices”, Bit, 26 (1986) 392–395.

    Article  Google Scholar 

  35. P.M. Pardalos, “Polynomial Time Algorithm for Some Classes of Constrained Non-convex Quadratic Problems”, Optimization, 21:6 (1990) 843–853.

    Article  Google Scholar 

  36. P.M. Pardalos, A.T. Phillips, “Global Optimization of Fractional Programs”, Jour nal of Global Optimization, 1 (1991) 173–182.

    Article  Google Scholar 

  37. P.M. Pardalos, J.B. Rosen, Constrained Global Optimization: Algorithms and Ap plications, Springer-Verlag, Lecture Notes in Computer Science, 268 (1987).

    Google Scholar 

  38. P.M. Pardalos, M. Sandström and C. Zopounidis, “On the use of optimization models for portfolio selection: A review and some computational results”, Compu tational Economics 7 (1994), pp. 227–244.

    Article  Google Scholar 

  39. A.F. Perold, “Large-Scale Portfolio Optimization”, Management Science, 30:10 (1984) 1143–1160.

    Article  Google Scholar 

  40. B.F. Plybon, An Introduction to Applied Numerical Analysis, PWS-KENT Publishing Company, Boston (1992).

    Google Scholar 

  41. S.M. Robinson, “Extended Scenario Analysis”, Annals of Operations Research, 31 (1991) 385–398.

    Article  Google Scholar 

  42. J. Barkley Roser. Jr.. “From Catastrophe to Chaos: A General Theory of Economic Discontinuities”. Kluwer Academic Publishers (Second Printing. 1992).

    Google Scholar 

  43. S. Schaible. “Fractional Programming: Applications and Algorithms”. European Journal of Operations Research, 7 (1981) 111–120.

    Article  Google Scholar 

  44. S. Schaible. “Introduction to Generalized Convexity”. In Generalized Convexity and Fractional Programming with applications, Springer-Verlag. Lecture Notes in Eco nomics and Mathematical Systems. 345 (1988) 2–13.

    Article  Google Scholar 

  45. J.K. Sengupta. Stochastic Optimization and Economic Models, D. Reidal Publishing Company (1986).

    Google Scholar 

  46. I.M. Stancu-Minasian. S. Tigan. “On Some Fractional Programming Models Occur ring in Minimum-Risk Problems”. In Generalized Convexity and Fractional Pro gramming With Applications. Springer-Verlag, Lecture Notes in Economics and Mathematical Systems, 345 (1988) 295–324.

    Article  Google Scholar 

  47. J. Tobin. “Liquidity Preference as Behavior Towards Risk”, Review of Economic Studies, 25 (1958) 65–86.

    Article  Google Scholar 

  48. Y. Yajima. H. Konno. “Outer Approximation Algorithms for Lower Rank Bilinear Programming Problems”, Institute of Human and Social Sciences Tokyo Institute of Technology (1992).

    Google Scholar 

  49. S. Zenios. “Financial Optimization”, Cambridge University Press (1993).

    Google Scholar 

  50. W.T Ziemba, C. Parkan, R. Brooks-Hill, “Calculation of Investment Portfolios with Risk Free Borrowing and Lending”, Management Science, 21:2 (1974) 209–222.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Center for Applied Optimization. Department of Industrial and Systems Engineering, University of Florida, Gainesville, FL, 32611-6595, USA

    P. M. Pardalos

Authors
  1. P. M. Pardalos
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Department of Production Engineering and Management Decision Support Systems Laboratory, Technical University of Crete, University Campus, GR-73100, Chania, Greece

    Constantin Zopounidis

Rights and permissions

Reprints and permissions

Copyright information

© 1997 Springer-Verlag Berlin Heidelberg

About this paper

Cite this paper

Pardalos, P.M. (1997). Optimization Techniques for Portfolio Selection. In: Zopounidis, C. (eds) New Operational Approaches for Financial Modelling. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-59270-6_2

Download citation

  • DOI: https://doi.org/10.1007/978-3-642-59270-6_2

  • Publisher Name: Physica, Heidelberg

  • Print ISBN: 978-3-7908-1043-1

  • Online ISBN: 978-3-642-59270-6

  • eBook Packages: Springer Book Archive

Publish with us

Policies and ethics

Search

Navigation