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The Journal of Portfolio Management

The Journal of Portfolio Management

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Primary Article

Using Binary Variables to Obtain Small Optimal Portfolios

Françoise Charpin and Dominique Lacaze
The Journal of Portfolio Management Fall 2007, 34 (1) 68-72; DOI: https://doi.org/10.3905/jpm.2007.698035
Françoise Charpin
A professor at the University of Paris II and OFCE in Paris, France. fcharpin@u-paris2.fr
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Dominique Lacaze
A professor at the University of Paris X-Nanterre in Nanterre, France. lacaze@u-paris10.fr
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Abstract

Binary modeling may be used in order to constrain the number of stocks in an optimal portfolio. Such modeling allows an exact resolution of the number problem raised by Jansen and van Dijk in an earlier issue; their solution is only approximate. Binary variable modeling allows imposition of a minimum threshold for portfolio weights, whether by itself or along with the numerical constraint. A manager can thus limit transaction and administrative costs when tracking a benchmark or constructing an efficient portfolio.

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The Journal of Portfolio Management
Vol. 34, Issue 1
Fall 2007
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Using Binary Variables to Obtain Small Optimal Portfolios
Françoise Charpin, Dominique Lacaze
The Journal of Portfolio Management Oct 2007, 34 (1) 68-72; DOI: 10.3905/jpm.2007.698035

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Using Binary Variables to Obtain Small Optimal Portfolios
Françoise Charpin, Dominique Lacaze
The Journal of Portfolio Management Oct 2007, 34 (1) 68-72; DOI: 10.3905/jpm.2007.698035
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