Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-15T07:27:54.165Z Has data issue: false hasContentIssue false
  • English
  • Français

Some Problems in Applying the Continuous Portfolio Selection Model to the Discrete Capital Budgeting Problem

Published online by Cambridge University Press:  06 April 2009

Sanford Baum ,
Robert C. Carlson  and
James V. Jucker
Get access Rights & Permissions [Opens in a new window]

Extract

Capital budgeting can be described as the problem of allocating scarce capital among a number of investment opportunities in such a manner that the outcome most preferred by a decision maker will result. When a single, mathematically explicit criterion is assumed, mathematical programming techniques can be applied. However, a single criterion, such as maximizing the return on investment or minimizing the risk of losing a sizable fraction of the original investment, is not appropriate for a significant number of real-world decision makers for whom two or more criteria, e.g., a judicious combination of return on investment and risk, are important. It has been argued [1] that it is usually not possible to obtain an explicit utility function for the decision maker and, consequently, that it is usually not possible to apply conventional (optimizing) mathematical programming techniques to find the most preferred outcome.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 2 , June 1978 , pp. 333 - 344
Copyright
Copyright © School of Business Administration, University of Washington 1978

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Baum, S., and Carlson, R. C.. “Multi-Goal Optimization in Managerial Science.” Omega: The International Journal of Management Science (10 1974), pp. 607–623.CrossRefGoogle Scholar
[2]Karlin, S.Mathematical Methods and Theory in Games, Programming, and Economics. Reading, Mass.: Addison-Wesley (1959).Google Scholar
[3]Kuhn, H. W., and Tucker, A. W.. “Nonlinear Programming.” Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability. Berkeley, Calif.: University of California Press (1951), pp. 481–492.Google Scholar
[4]Lawler, E. L, and Bell, M. D.. “A Method for Solving Discrete Optimization Problems.” Operations Research (11–12 1966), pp. 1098–1112.Google Scholar
[5]Mao, J. C.Quantitative Analysis of Financial Decisions. New York: Macmillan Co. (1969).Google Scholar
[6]Markowitz, H. M.Portfolio Selection: The Efficient Diversification of Investments. New York: John Wiley and Sons, Inc. (1959).Google Scholar
[7]Weingartner, H. M. “Criteria for Programming Investment Project Selection.” Journal of Industrial Economics (11 1966), pp. 65–76.CrossRefGoogle Scholar
[8]Weingartner, H. M.Mathematical Programming and the Analysis of Capital Budgeting Problems. Englewood Cliffs, N.J.: Prentice-Hall (1967).Google Scholar