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OPTIMAL PORTFOLIO SELECTION WITH UPPER BOUNDS FOR INDIVIDUAL SECURITIES *
Author(s) -
Kwan Clarence C. Y.,
Yip Patrick C. Y.
Publication year - 1987
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1987.tb01543.x
Subject(s) - portfolio , selection (genetic algorithm) , arbitrage , computer science , replicating portfolio , index (typography) , mathematical optimization , project portfolio management , modern portfolio theory , portfolio optimization , application portfolio management , post modern portfolio theory , mathematical economics , simple (philosophy) , actuarial science , mathematics , economics , financial economics , artificial intelligence , project management , management , world wide web , philosophy , epistemology
In this paper, we consider optimal portfolio selection with no short sales and with upper bounds for individual securities. The solution is reached by directy revising the optimal portfolio without upper bounds. Specifically, our analysis is based on the single‐index model, as well as the general multi‐index model that provides the return generating process for securities in the arbitrage pricing theory. As demonstrated in a simulation study, the proposed algorithm for optimal portfolio selection usually requires very few iterations. Also, since our approach is developed using intuitive reasoning and simple linear algebra, we are able to provide direct and intuitive justifications for the resulting portfolio choice. Therefore this paper should be of interest to both finance academics and practitioners in portfolio management.