A Continuous Optimization Approach for the Financial Portfolio Selection under Discrete Asset Choice Constraints

In this paper we consider a generalization of the Markowitz's Mean-Variance model under linear transaction costs and cardinality constraints. The cardinality constraints are used to limit the number of assets in the optimal portfolio. The generalized model is formulated as a mixed integer quadratic programming (MIP) problem. The purpose of this paper is to investigate a continuous approach based on difference of convex functions (DC) programming for solving the MIP model. The preliminary comparative results of the proposed approach versus CPLEX are presented.