A Dual Concept and Associated Algorithm in Mean-Variance Portfolio Analysis

Roger J. Bowden
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Roger J. Bowden: University of Western Australia

Management Science, 1976, vol. 23, issue 4, 423-432

Abstract: We consider in this paper the problem of allocation by an investor of his funds between a set of risky assets and a single safe asset, under conditions in which the separation theorem holds. Focussing in particular on the computationally more difficult case where no short sales are permitted, we exhibit a dual problem which arises naturally out of the saddle-point property implied in the Kuhn-Tucker optimising conditions. By showing how to solve this dual we derive a computationally straightforward method of solution for the optimum portfolio proportions and obtain a condition for every security to be held. We show briefly how the treatment can be extended to general homogeneous restrictions on portfolio proportions.

Date: 1976
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:23:y:1976:i:4:p:423-432

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