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Solution: Constrained Optimization

Solution: Constrained Optimization

Understand the complete solution and explanation of the constrained optimization challenge.

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Explanation

In the portfolio optimization problem,x1,x2,x3x_1,x_2,x_3 denote the fraction of each stock (STK1, STK2, STK3) in the portfolio. The goal is to maximize the diversity of the portfolio given by the EMP.

An EMP can be written as a standard minimization problem as follows:

where ARm×dA \in \R^{m \times d} is the constraint matrix with the mm constraints and bRmb \in \R^m is the constraint vector.

In the portfolio optimization problem x=[x1x2x3]R3x = \begin{bmatrix} x_1 \\ x_2 \\ x_3 \end{bmatrix} \in \R^3 ...