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BUY-IN Constraint in Solver

  1. #1
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    05-22-2012
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    Excel 2007
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    BUY-IN Constraint in Solver

    Hello Excel Experts

    I have a problem concerning the excel-solver I was hoping you could help me with.

    I am doing a portfolio optimization problem using the excel solver. I have 10 possible asset classes, where I have calculated the mean returns, standard deviations and covariances in order to do an asset allocation. I use the solver to find the portfolio with the minimum standard deviation for a given level of expected return. When it solves for the optimal portfolio it does not need to use all the asset classes. All asset weights must sum to 1 (which have been incorporated into the model).

    The Problem: I have allowed for short sales, meaning that the individual asset weights can take on any values between -infinity to +infinity. When solving the unconstrained portfolio in excel it sometimes results in a very small weight for some of the asset classes, e.g. +0.1% or -0.1%. I wish to set a minimum weight invested in a given asset class of say +5% or -5%, meaning that the weights are allowed to take on any value between -infinity to -5% or 5% to infinity, or of course be excluded (zero).

    I don't know if it is possible to do this using the solver, but maybe some of you have some ideas, either using the solver in excel or another application, etc. All input is highly appreciated.

    If you need further explanation, please let me know.

    Thansk in Advance.

    - WhamBam
    Last edited by WhamBam; 06-08-2012 at 03:18 AM.

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