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A Linear Programming Approximation for the General Portfolio Analysis Problem

Published online by Cambridge University Press:  19 October 2009

William F. Sharpe
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Extract

Almost twenty years ago, Markowitz [4] first suggested that portfolio selection be regarded as a parametric quadratic programming problem. Risk is stated in terms of the predicted variance of portfolio return — a function that is quadratic in the decision variables (the proportions of the portfolio invested in various securities). All other functions (e.g., expected return) and constraints are assumed to be linear. The objective is to find the set of efficient feasible portfolios. A portfolio is feasible if it satisfies a set of relevant linear constraints; it is efficient if it provides (1) less variance than any other feasible portfolio with the same expected return and (2) more expected return than any other feasible portfolio with the same variance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 6 , Issue 5 , December 1971 , pp. 1263 - 1275
Copyright
Copyright © School of Business Administration, University of Washington 1971

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References

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