Selecting portfolios with fixed costs and minimum transaction lots

The original Markowitz model of portfolio selection has received a widespread theoretical acceptance and it has been the basis for various portfolio selection techniques. Nevertheless, this normative model has found relatively little application in practice when some additional features, such as fix...

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Bibliographic Details
Published in:Annals of operations research 2000-01, Vol.99 (1), p.287
Main Authors: Kellerer, Hans, Mansini, Renata, Speranza, M Grazia
Format: Article
Language:English
Subjects:
Capital assets
Diversification
Heuristic
Integer programming
Investments
Investors
Linear programming
Mathematical models
Mathematical programming
Operations research
Portfolio management
Random variables
Stock exchanges
Studies
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Summary:The original Markowitz model of portfolio selection has received a widespread theoretical acceptance and it has been the basis for various portfolio selection techniques. Nevertheless, this normative model has found relatively little application in practice when some additional features, such as fixed costs and minimum transaction lots, are relevant in the portfolio selection problem. In this paper different mixedinteger linear programming models dealing with fixed costs and possibly minimum lots are introduced. Due to the high computational complexity of the models, heuristic procedures, based on the construction and optimal solution of mixed integer subproblems, are proposed. Computational results obtained using data from the Milan Stock Exchange show how the proposed heuristics yield very good solutions in a short computational time and make possible some interesting financial conclusions on the impact of fixed costs and minimum lots on portfolio composition. [PUBLICATION ABSTRACT]
ISSN:0254-5330
1572-9338
DOI:10.1023/A:1019279918596