journal6 ›› 2008, Vol. 29 ›› Issue (5): 113-120.

• Economics • Previous Articles     Next Articles

Optimization for the Portfolio Selection Model Maximizing Utility with the Different Lending and Borrowing Rate


  1. (School of Management,Wuhan University of Science and Technology,Wuhan 430081,China)
  • Online:2008-09-25 Published:2012-05-20

Abstract: Considering the expected rate of the return of the portfolio and its risk (variance),the author  proposed a maximizing the utility portfolio selection model with risk-free asset,and importantly studied the situation in which the lending and borrowing rates of risk-free asset were different.Under short sales situation,using the Lagrange method and Sherman-morrison’s equation,the paper gets the optimal investing rate of every security and studies the efficient frontiers’ character.Under no short sales situation,the paper solves the model by the pivoting algorithm.The algorithm solves the quadric programming problem without adding slack,surplus and artificial variables.It is very efficient and easy to operate.At last,the paper compares the two models using an example and gets the result that risk preference coefficient with short sales and without short sales could reflect the investor’s expected rate of return and variance within the entire interval,and risk-free assets can create investment chance.

Key words: portfolio selection, utility, pivoting algorithm, risk preference coefficient

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