Portfolio selection with divisible and indivisible assets: Mathematical algorithm and economic analysis

Rafael Lazimy ()

Annals of Operations Research, 2007, vol. 152, issue 1, 273-295

Abstract: We extend the classic mean-variance framework to a broad class of investment decisions under risk where investors select optimal portfolios of risky assets that include perfectly divisible as well as perfectly indivisible assets. We develop an algorithm for solving the associated mixed-integer nonlinear program and report on the results of a computational study. We then study the mean-variance structure of the investment frontier facing an individual investor in the presence of investment opportunities in both risky divisible and indivisible assets. Finally, we analyze the economic implications of the presence of investment opportunities in risky indivisible assets on the investor’s investment strategy and on his risk evaluation. Copyright Springer Science+Business Media, LLC 2007

Keywords: Portfolio selection; Mean-variance analysis; Asset pricing; Divisible and indivisible assets; Mixed-integer nonlinear optimization; Outer-approximation; Relaxation (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s10479-006-0141-5

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