IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v152y2007i1p273-29510.1007-s10479-006-0141-5.html
   My bibliography  Save this article

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

Author

Listed:
  • Rafael Lazimy

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

Suggested Citation

  • Rafael Lazimy, 2007. "Portfolio selection with divisible and indivisible assets: Mathematical algorithm and economic analysis," Annals of Operations Research, Springer, vol. 152(1), pages 273-295, July.
    • Handle: RePEc:spr:annopr:v:152:y:2007:i:1:p:273-295:10.1007/s10479-006-0141-5
    DOI: 10.1007/s10479-006-0141-5
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10479-006-0141-5
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10479-006-0141-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242, September.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    3. Jagannathan, Ravi & Kubota, Keiichi & Takehara, Hitoshi, 1998. "Relationship between Labor-Income Risk and Average Return: Empirical Evidence from the Japanese Stock Market," The Journal of Business, University of Chicago Press, vol. 71(3), pages 319-347, July.
    4. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    5. Mayers, David, 1973. "Nonmarketable Assets and the Determination of Capital Asset Prices in the Absence of a Riskless Asset," The Journal of Business, University of Chicago Press, vol. 46(2), pages 258-267, April.
    6. Merton, Robert C., 1972. "An Analytic Derivation of the Efficient Portfolio Frontier," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(4), pages 1851-1872, September.
    7. Blume, Marshall E & Friend, Irwin, 1975. "The Asset Structure of Individual Portfolios and Some Implications for Utility Functions," Journal of Finance, American Finance Association, vol. 30(2), pages 585-603, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marcello D'Amato & Christian Di Pietro & Marco M. Sorge, 2023. "Left and Right: A Tale of Two Tails of the Wealth Distribution," CSEF Working Papers 691, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Rafael Lazimy, 2013. "Interactive Polyhedral Outer Approximation (IPOA) strategy for general multiobjective optimization problems," Annals of Operations Research, Springer, vol. 210(1), pages 73-99, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wenzelburger, Jan, 2008. "A Note on the Two-fund Separation Theorem," MPRA Paper 11014, University Library of Munich, Germany, revised 31 Sep 2008.
    2. Thomas J. Brennan & Andrew W. Lo, 2010. "Impossible Frontiers," Management Science, INFORMS, vol. 56(6), pages 905-923, June.
    3. Karagiannidis, Iordanis & Vozlyublennaia, Nadia, 2016. "Limits to mutual funds' ability to rely on mean/variance optimization," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 282-292.
    4. David S. Jones & V. Vance Roley, 1981. "Bliss Points in Mean-Variance Portfolio Models," NBER Technical Working Papers 0019, National Bureau of Economic Research, Inc.
    5. Nolan Alexander & William Scherer, 2024. "Using Machine Learning to Forecast Market Direction with Efficient Frontier Coefficients," Papers 2404.00825, arXiv.org.
    6. Penaranda, Francisco, 2007. "Portfolio choice beyond the traditional approach," LSE Research Online Documents on Economics 24481, London School of Economics and Political Science, LSE Library.
    7. Peter J Phillips, 2009. "Are Larger Self Managed Superannuation Funds Riskier?," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 1(1), pages 5475-5475, December.
    8. Kusdhianto SETIAWAN, 2012. "Reexamination Of Dynamic Betainternational Capm: A Sur With Garch Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 10, pages 105-127, December.
    9. Merton, Robert, 1990. "Capital market theory and the pricing of financial securities," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 11, pages 497-581, Elsevier.
    10. Niels Wesselhöfft & Wolfgang K. Härdle, 2020. "Risk-Constrained Kelly Portfolios Under Alpha-Stable Laws," Computational Economics, Springer;Society for Computational Economics, vol. 55(3), pages 801-826, March.
    11. Merton, Robert C., 1993. "On the microeconomic theory of investment under uncertainty," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 13, pages 601-669, Elsevier.
    12. Elisa Cavezzali & Gloria Gardenal & Ugo Rigoni, 2012. "Risk taking, diversification behavior and financial literacy of individual investors," Working Papers 17, Department of Management, Università Ca' Foscari Venezia.
    13. Kusdhianto Setiawan & Koichi Maekawa, 2014. "Estimation Of Vector Error Correction Model With Garch Errors: Monte Carlo Simulation And Applications," EcoMod2014 7002, EcoMod.
    14. Jan Wenzelburger, 2010. "The two-fund separation theorem revisited," Annals of Finance, Springer, vol. 6(2), pages 221-239, March.
    15. Seokkeun Ha & Frank J. Fabozzi, 2022. "A lifetime allocation with human capital: implications for target date fund," Journal of Asset Management, Palgrave Macmillan, vol. 23(5), pages 365-375, September.
    16. Teresa Garcia & Daniel Borrego, 2017. "Markowitz Efficient Frontier And Capital Market Line – Evidence From The Portuguese Stock Market," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 22(1), pages 3-23.
    17. Bai, Zhidong & Phoon, Kok Fai & Wang, Keyan & Wong, Wing-Keung, 2013. "The performance of commodity trading advisors: A mean-variance-ratio test approach," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 188-201.
    18. repec:ebl:ecbull:v:7:y:2004:i:3:p:1-10 is not listed on IDEAS
    19. De Gennaro Aquino, Luca & Sornette, Didier & Strub, Moris S., 2023. "Portfolio selection with exploration of new investment assets," European Journal of Operational Research, Elsevier, vol. 310(2), pages 773-792.
    20. Woll, Oliver, 2015. "Mean-risk hedging strategies in electricity markets with limited liquidity," ZEW Discussion Papers 15-056, ZEW - Leibniz Centre for European Economic Research.
    21. Sylvain, Serginio, 2014. "Does Human Capital Risk Explain The Value Premium Puzzle?," MPRA Paper 54551, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:152:y:2007:i:1:p:273-295:10.1007/s10479-006-0141-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.