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Convexification Technique and Portfolio Optimization

Cristinca FULGA1,2
1 The Bucharest University of Economic Studies
6, Piaţa Romană 374 Bucharest 1, Romania
2 “Gheorghe Mihoc-Caius Iacob” Institute of Mathematical Statistics
and Applied Mathematics of the Romanian Academy
13, Calea 13 Septembrie, 050711 Bucharest 5, Romania

Abstract: In this paper, a general transformation method which converts a nonconvex optimization problem to an equivalent problem with better properties is proposed. Under certain assumptions, the local convexity of the Lagrangian function of the equivalent problem is guaranteed and thus the class of optimization models to which dual methods can be applied is extended. Practical classes of problems where the proposed method can be applied are given. They include the class of portfolio selection models. Numerical examples illustrate the main results.

Keywords: Nonconvex optimization; local convexification; Lagrangian function, portfolio optimization, efficient frontier.

>>Full text
Cristinca FULGA, Convexification Technique and Portfolio Optimization, Studies in Informatics and Control, ISSN 1220-1766, vol. 22 (4), pp. 285-290, 2013.