a quadratic programming problem with an analytical solu-

tion, whenever the portfolio choice is unrestricted. The an-

alytical solution involves an inversion of the covariance ma-

trix. When short-sale constraints are added to the problem

it is usually thought of as adding considerable complexity

to the quadratic programming problem. This paper shows

that such problems can be handled by a simple linear pro-

gramming procedure, which allows for multiple changes of

basis variables. We show how some classical selection cri-

teria from models with particular covariance matrices fall

into this framework. Furthermore, adding linear constraints

like maximum placement limits for subsets of assets is easily

incorporated.

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Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2001-2.

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Length: 29 pages
Date of creation: 02 Feb 2001
Date of revision:
Handle: RePEc:hhs:cbsfin:2001_002

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Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
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Web page: http://www.cbs.dk/departments/finance/
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Related research

Keywords: Keywords: Mean variance efficient portfolios; short sale constraints; linear programming; multiple basis shifts; place- ment limits.;

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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1. Elton, Edwin J & Gruber, Martin J & Padberg, Manfred W, 1976. "Simple Criteria for Optimal Portfolio Selection," Journal of Finance, American Finance Association, vol. 31(5), pages 1341-57, December. [Downloadable!] (restricted)
2. Kwan, Clarence C Y, 1984. " Portfolio Analysis Using Single Index, Multi-index, and Constant Correlation Models: A Unified Treatment," Journal of Finance, American Finance Association, vol. 39(5), pages 1469-83, December. [Downloadable!] (restricted)

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