Starting with the seminal work by Markowitz, a large number of (continuous) optimization models have been proposed to find an ideal allocation of capital among several available assets to achieve the investor’s objectives. Among them, due to known difficulties in obtaining reliable parameter estimates, the recent Risk Parity approach calls for equally sharing the risk among all assets of the market, thus disregarding the utility of the investor. We propose here a new nonlinear PseudoBoolean model that joins the benefits of the Risk Parity approach and of utility maximization, and we propose an efficient heuristic for its solution.
Scozzari, A., Cesarone, F., Tardella, F. (2015). PseudoBoolean models for portfolio selection. In Proceedings of 27th European Conference on Operational Research (pp.30-30).