Portoflio Optimization

Hello,

I am currently trying to use the portfolio optimization tools in Matlab to deal with an investing problem and I am having a bit of an issue.

What I would like to do is begin with 20 (or more) assets that can be invested bought or sold, but I only want to hold (long or short) say 8 of the assets instead of the entire 20. That is, I would like matlab to find the optimal portfolio where an investor can hold only 8 out of a possible 20 assets.

Any possible advice would be greatly appreciated.

Thank you,

Answer 1

[Oleg Komarov]

I am afraid you can't easily implement it with the existing tools.

There are some papers out there (googling portfolio optimization cardinality constraints): http://www.ra.cs.uni-tuebingen.de/publikationen/2003/streichert03evolutionary.pdf

MATLAB related links that might help you:

• http://www.mathworks.co.uk/products/optimization/demos.html?file=/products/demos/shipping/optim/portfoptimdemo.html
• http://www.mathworks.com/matlabcentral/fileexchange/18126
• The authors claim they coded their algorithm in MATLAB, you may ask them: http://arxiv.org/ftp/arxiv/papers/1105/1105.3594.pdf