Portfolio selection with divisible and indivisible assets: Mathematical algorithm and economic analysis |
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Authors: | Rafael Lazimy |
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Institution: | (1) University of Wisconsin-Madison, Grainger Hall, 975 University Avenue, Madison, WI, 53706-1323, USA |
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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. |
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Keywords: | Portfolio selection Mean-variance analysis Asset pricing Divisible and indivisible assets Mixed-integer nonlinear optimization Outer-approximation Relaxation |
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