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An integer programming algorithm for portfolio selection with fixed charges

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  • Mary W. Cooper
  • Keyvan Farhangian

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.

Suggested Citation

  • Mary W. Cooper & Keyvan Farhangian, 1982. "An integer programming algorithm for portfolio selection with fixed charges," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 29(1), pages 147-150, March.
    • Handle: RePEc:wly:navlog:v:29:y:1982:i:1:p:147-150
    DOI: 10.1002/nav.3800290113
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    Cited by:

    1. Guo, Sini & Gu, Jia-Wen & Fok, Christopher H. & Ching, Wai-Ki, 2023. "Online portfolio selection with state-dependent price estimators and transaction costs," European Journal of Operational Research, Elsevier, vol. 311(1), pages 333-353.

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