A distributed computation algorithm for solving portfolio problems with integer variables

Han-Lin Li, Jung Fa Tsai*

*Corresponding author for this work

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

A portfolio problem with integer variables can facilitate the use of complex models, including models containing discrete asset values, transaction costs, and logical constraints. This study proposes a distributed algorithm for solving a portfolio program to obtain a global optimum. For a portfolio problem with n integer variables, the objective function first is converted into an ellipse function containing n separated quadratic terms. Next, the problem is decomposed into m equal-size separable programming problems solvable by a distributed computation system composed of m personal computers linked via the Internet. The numerical examples illustrate that the proposed method can obtain the global optimum effectively for large scale portfolio problems involving integral variables.

Original languageEnglish
Pages (from-to)882-891
Number of pages10
JournalEuropean Journal of Operational Research
Volume186
Issue number2
DOIs
StatePublished - 16 Apr 2008

Keywords

  • Convex
  • Finance
  • Portfolio
  • Quadratic integer program

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