Joining risk diversification and utility maximization for portfolio selection

Utility maximization has been the main approach to portfolio selection since the pioneering work by Markowitz. However, due to the difficulty of obtaining good estimates of the expected return of a portfolio, several authors have devoted their work to the problem of minimizing or, at least, diversifying risk. Here, we describe a new framework for portfolio selection that aims at unifying the utility maximization and the risk diversification approaches by also taking into account an optimal assets selection step, possibly with limitations on the number of assets required in the selected portfolio. This new framework leads to several hard MINLP models.