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Portfolio construction with cardinality and lot size constraints


C. Moustafelos

Master Thesis, HS14 (10369)

Markowitz portfolio construction model is widely used in the industry and is a highly recognized model for investment allocation. In this thesis we are going to extend this model to capture some constraints that an investor would like to set. For this purpose, we are interested in the constraints of maximum number of assets (cardinality constraint), upper/lower bound for investment and the integer lot constraint (the amount invested in every instrument should be an integer multiplier of its price). The addition of these constraints makes our problem a Mixed Integer Quadratic Programming problem (MIQP). Existing commercial MIQP solvers are not able to solve problems of large dimension to proven optimality in a reasonable amount of time. For this reason we have implemented various set reduction heuristics methods (smartly exclude some instruments) and a genetic algorithm solution introducing a novel mutation operator. We will present results and the efficient frontiers from various data sets with different number of instruments and compare our implemented methods with a commercial MIQP solver.

Supervisors: Marcus Hildmann (Swiss Quant), Angelos Georghiou, John Lygeros


Type of Publication:

(12)Diploma/Master Thesis

J. Lygeros

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% Autogenerated BibTeX entry
@PhdThesis { Xxx:2015:IFA_5173
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