Using column generation to solve extensions to the Markowitz model

Lorenz M. Roebers, Aras Selvi and Juan C. Vera

The Engineering Economist, 2019, vol. 64, issue 3, 275-288

Abstract: We introduce a solution scheme for portfolio optimization problems with cardinality constraints. Typical portfolio optimization problems are extensions of the classical Markowitz mean–variance portfolio optimization model. We solve such types of problems using a method similar to column generation. In this scheme, the original problem is restricted to a subset of the assets resulting in a master convex quadratic problem. Then the dual information of the master problem is used in a subproblem to propose more assets to consider. We also consider other extensions to the Markowitz model to diversify the portfolio selection within given intervals for active weights.

Date: 2019
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DOI: 10.1080/0013791X.2019.1636439

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