[R-SIG-Finance] Portfolio construction with integer constraints

[alexios ghalanos]

Magnus,

Have you done a search for "round lots" in the context of portfolio 
optimization? There are many references. I have personally found 
Scherer's classic ("Introduction to Modern Portfolio Optimization") to 
be quite good (see page 96 for this particular problem).

Keep in mind that in R you only have, AFAIK, MILP solvers. MINLP or MIQP 
are usually only found in commercial implementations (though you also 
have couenne in coin-or which has not been ported to R yet).

If you want to have a look at an implementation of 'in-between or out' 
cardinality constraints, the parma package on CRAN implements this for a 
number of risk measures within a MILP framework (using the GLPK solver).

Regards,
Alexios


On 14/02/2013 17:56, Sigurdsson, Magnus wrote:
> Dear R Finance enthusiasts
>
> I was wondering if anyone had experience with using R for portfolio construction with integer constraints, such as mean variance optimization, or equal risk contribution optimization, where you can only have integer number of shares/contracts in each underlying asset?
>
> The case I am referring to is, for example, a futures trading strategy, where you trade a few different futures markets. Due to the generally large nominal size of futures contract, your budget allows you only to trade 1 to 5 contracts of each different asset. The problem being creating an optimal portfolio with those constraints.
>
> I have done a fair amount of Google searches, and have looked through http://cran.r-project.org/web/views/Optimization.html . I have some mathematical optimization background, but it is getting a little rusty, not sure how to proceed. I was hoping someone here had some ideas.
>
> Thank you very much,
>
> Magnus Sigurdsson
>
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