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A global optimization problem in portfolio selection

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Abstract

This paper deals with the issue of buy-in thresholds in portfolio optimization using the Markowitz approach. Optimal values of invested fractions calculated using, for instance, the classical minimum-risk problem can be unsatisfactory in practice because they lead to unrealistically small holdings of certain assets. Hence we may want to impose a discrete restriction on each invested fraction y i such as y i y min or y i =  0. We shall describe an approach which uses a combination of local and global optimization to determine satisfactory solutions. The approach could also be applied to other discrete conditions—for instance when assets can only be purchased in units of a certain size (roundlots).

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Correspondence to M. C. Bartholomew-Biggs.

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Bartholomew-Biggs, M.C., Kane, S.J. A global optimization problem in portfolio selection. Comput Manag Sci 6, 329–345 (2009). https://doi.org/10.1007/s10287-006-0038-4

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