Quadratic Binary Programming with Application to Capital-Budgeting Problems

D. J. Laughhunn
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D. J. Laughhunn: Southern Illinois University, Carbondale, Illinois

Operations Research, 1970, vol. 18, issue 3, 454-461

Abstract: The purpose of this paper is to present an algorithm for solving the quadratic binary programming problem. Although a problem with this structure may arise in many situations, it is particularly common in capital budgeting when a decision-maker is confronted with a set of investment proposals from which he must select a portfolio. If returns of proposals are intercorrelated random variables and if the decision-maker uses as his criterion for selection the mean μ and variance σ 2 of portfolio returns, his decision requires prior identification of the (μ, σ 2 ) efficient set. The algorithm developed to solve the problem and hence necessary to generate the efficient set is based on the concept of implicit enumeration recently introduced by Egon Balas for solution of the binary linear programming problem.

Date: 1970
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