Multicriteria Portfolio Construction with Python by Elissaios Sarmas & Panos Xidonas & Haris Doukas

Author:Elissaios Sarmas & Panos Xidonas & Haris Doukas
Language: eng
Format: epub
ISBN: 9783030537432
Publisher: Springer International Publishing

while the restriction concerning no short sales allowance is

The above equations constitute a bi-objective quadratic optimization problem which is presented below:

(5.26)

The problem is solved parametrically for a predefined parameter of the portfolio expected return. Let R be the portfolio expected return. The problem is transformed into a linear programming problem with an additional restriction concerning the expected return, which is presented below:

(5.27)

In this section, a variation of the conventional mean–variance model is developed (Xidonas & Mavrotas, 2012) [215]. The model is equipped with binary variables b i, in order to control the existence of each security in the portfolio. More specifically, if b i = 1, the i th security participates in the portfolio, else if b i = 0, it does not. The use of binary variables allows the direct determination of the number of securities in the portfolio, producing the following cardinality constraint equation:

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