Using column generation to solve extensions to the Markowitz model

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Abstract

We introduce a solution scheme for portfolio optimization problems with cardinality constraints. Typical portfolio optimization problems are extensions of the classical Markowitz mean-variance portfolio optimization model. We solve such types of problems using a method similar to column generation. In this scheme, the original problem is restricted to a subset of the assets resulting in a master convex quadratic problem. Then the dual information of the master problem is used in a subproblem to propose more assets to consider. We also consider other extensions to the Markowitz model to diversify the portfolio selection within given intervals for active weights.
Original languageEnglish
Pages (from-to)275-288
JournalThe Engineering Economist
Volume64
Issue number3
DOIs
Publication statusPublished - Jul 2019

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